EDGAR 10-K Filing

Company CIK: 1577368
Filing Year: 2021
Filename: 1577368_10-K_2021_0001628280-21-003456.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
Unless the context requires otherwise, references in this Form 10-K to “we,” “our,” “us,” “our company” and “the Company” refer to QTS Realty Trust, Inc. (“QTS”), a Maryland corporation, together with its consolidated subsidiaries, including QualityTech, LP, a Delaware limited partnership, which we refer to in this Form 10-K as the “Operating Partnership” or “predecessor.”
Overview
QTS is a leading provider of data center solutions to the world’s largest and most sophisticated hyperscale technology companies, enterprises and government agencies. Through our technology-enabled platform, delivered across mega scale data center infrastructure, we offer a comprehensive portfolio of secure and compliant IT solutions. Our data centers are facilities that power and support our customers’ IT infrastructure equipment and provide seamless access and connectivity to a range of communications and IT services providers. Across our broad footprint of strategically located data centers, we provide flexible, scalable and secure IT solutions, including data center space, power and cooling, connectivity and value-add managed services for more than 1,200 customers in the financial services, healthcare, retail, government, technology and various other industries. We build out our data center facilities depending on the needs of our customers to accommodate both multi-tenant environments (hybrid colocation) and customers that require significant amounts of space and power (hyperscale), including federal customers. We believe that we own and operate one of the largest portfolios of multi-tenant data centers in the United States, as measured by gross square footage, and have the capacity to nearly double our sellable data center raised floor space without constructing or acquiring any new buildings. In addition, we own more than 785 acres of land that is available at our data center properties that provides us with the opportunity to significantly expand our capacity to further support future demand from current and new potential customers.
As of December 31, 2020, our data center portfolio consisted of 28 data centers located throughout the United States, Canada and Europe. Across our footprint, our data centers are concentrated in the markets which we believe offer the highest growth opportunities. Our data centers are highly specialized, mission-critical facilities utilized by our customers to store, power and cool the server, storage, and networking equipment that support their most critical business systems and processes. We believe that our data centers are best-in-class and engineered to adhere to the highest specifications commercially available to customers, providing fully redundant, high-density power and cooling sufficient to meet the needs of the largest companies and organizations in the world. We have demonstrated a strong operating track record of “five-nines” (99.999%) reliability since QTS’ inception.
The COVID-19 Pandemic
The COVID-19 pandemic has caused significant disruptions to the United States and global economy and has contributed to significant volatility in financial markets, however, as of December 31, 2020, these developments have not had a known material adverse effect on our business. As of December 31, 2020, each of our data centers in North America and Europe are fully operational and operating in accordance with our business continuity plans. Across each of the respective jurisdictions in which we operate, our business has been deemed an essential operation, which has allowed us to remain fully staffed with critical personnel in place to continue to provide service and support for our customers.
The extent to which COVID-19 impacts our and our customers’ operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the pandemic, new information that may emerge concerning the severity, variants or mutations of COVID-19, vaccine efficacy and rollout and other actions taken to contain COVID-19 or treat its impact, among others. The COVID-19 pandemic presents material uncertainty and risk with respect to our business, financial performance, and results of operations and also may exacerbate many of the risks identified under the section entitled “Risk Factors”. For a further discussion of the risks related to the COVID-19 pandemic, see “Item 1A Risk Factors.”
Our Portfolio
As of December 31, 2020, including 100% of the unconsolidated entity with which we are affiliated, we operated 28 data center properties located throughout the United States, Canada and Europe, containing an aggregate of approximately 7.8
million gross square feet of space, including approximately 3.5 million “basis-of-design” raised floor square feet (approximately 96.9% of which is wholly owned by us including our data center in Santa Clara which is subject to a long-term ground lease), which represents the total sellable data center raised floor potential of our existing data center facilities. This reflects the maximum amount of space in our existing buildings that could be leased following full build-out, depending on the space and power configuration that we deploy. As of December 31, 2020, this space included approximately 2.0 million raised floor operating net rentable square feet, or NRSF, plus approximately 1.6 million square feet of additional raised floor available for development, of which approximately 0.3 million raised floor square feet is expected to become operational by December 31, 2021. Of the total 1.6 million raised floor square feet available for development, approximately 0.2 million square feet was related to customer leases which had been executed as of December 31, 2020 but not yet commenced. Our facilities collectively have access to approximately 1,050 megawatts (“MW”) of available utility power. Access to power typically is the most limiting and expensive component in developing a data center and, as such, we believe our significant access to power represents an important competitive advantage.
We account for the operations of all our properties in one reporting segment.
Our Customer Base
Our data center facilities are designed with the flexibility to support a diverse set of solutions and customers. Our customer base is comprised of more than 1,200 different companies of all sizes representing an array of industries, each with unique and varied business models and needs. We serve Fortune 1000 companies as well as small and medium-sized businesses, or SMBs, including financial institutions, healthcare companies, retail companies, government agencies, communications service providers, software companies and global Internet companies.
We have customers that range from large enterprise and technology companies with significant IT expertise and data center requirements, including financial institutions, “Big Four” accounting firms and the world’s largest global Internet and cloud companies, to major healthcare, government agencies, telecommunications and software and web-based companies.
As a result of our diverse customer base, customer concentration in our portfolio is limited. As of December 31, 2020, only five of our more than 1,200 customers individually accounted for more than 3% of our monthly recurring revenue (“MRR”), with the largest customer accounting for approximately 13.1% of our MRR and the next largest customer accounting for only 5.4% of our MRR.
The majority of our MRR is generated from customers deployed in our U.S. data center locations. Customers deployed in our U.S. data center locations accounted for $38.0 million, $33.6 million and $31.0 million of total MRR as of December 31, 2020, 2019 and 2018, respectively, and MRR from our international locations represented $0.6 million, $0.5 million and $0.2 million of MRR as of December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, our booked-not-billed MRR balance (which represents customer leases that have been executed, but for which lease payments have not commenced as of December 31, 2020) was approximately $12.9 million, or $154.4 million of annualized rent. As of December 31, 2019, our booked-not-billed MRR balance was approximately $7.8 million, or $93.1 million of annualized rent.
Our Structure
Substantially all of our assets are held by, and all of our operations are conducted through, the Operating Partnership. Our interest in the Operating Partnership entitles us to share in cash distributions from, and in the profits and losses of, the Operating Partnership in proportion to our percentage ownership. As the sole general partner of the Operating Partnership, we generally have the exclusive power under the Operating Partnership’s partnership agreement to manage and conduct the Operating Partnership’s business and affairs.
The following diagram depicts our ownership structure, on a non-diluted basis as of December 31, 2020.
Our Competitive Strengths
We believe that we are uniquely positioned in the data center industry and distinguish ourselves from other data center providers through the following competitive strengths:
•Software-Defined Data Center Platform. QTS’ Service Delivery Platform (“SDP”) is a software-defined orchestration platform that empowers customers to interact with their data and QTS services by providing real-time visibility, access and dynamic control of critical metrics across hybrid environments from a single platform. Collectively, the ability to digitize, analyze and automate significant amounts of data through SDP enables customers to innovate, make better business decisions and maximize their outsourced IT investments both within QTS and across multiple integrated service providers.
•Platform Anchored by Strategically Located, Owned “Mega” Data Centers. Our larger “mega” data centers are located in Ashburn (DC-1 & DC-2), Atlanta (DC-1 & DC-2), Atlanta-Suwanee, Chicago, Fort Worth, Irving, Piscataway, Princeton, Richmond, Hillsboro and Manassas (including one facility which we contributed to an unconsolidated entity and a separate facility under development in Manassas that is 100% owned by us). Our facilities are constructed with the flexibility and capacity to support multi-tenant environments across a broad range of customer types, sizes and IT infrastructure requirements, which we believe delivers greater efficiency than single-use or smaller scale data centers. We believe that our data centers are engineered to among the highest specifications commercially available. As of December 31, 2020, our portfolio of 28 data center properties (18 of which are wholly owned, representing 96.9% of our raised square feet, including our data center in Santa Clara which is subject to a long-term ground lease) provides the opportunity to significantly expand our sellable data
center raised floor capacity without constructing or acquiring any new buildings. In addition, we own approximately 785 acres of land at our existing data center properties that provides us with the opportunity to significantly expand our capacity to further support future demand from current and new potential customers.
• Substantial Data Center Development Expertise. We have gained substantial expertise in developing data center facilities through the acquisition and redevelopment and/or construction of our operating facilities. Our data center development strategy is primarily focused on “mega” scale facilities that allow for significant incremental growth opportunity, either through ground up development or redevelopment of existing data center powered shell footprint. Our data center development strategy allows us to rapidly scale our developments in a modular manner to coincide with customer demand, and drives higher efficiency into our model through increased operating and build cost leverage at scale.
•Balanced Approach to Hyperscale and Hybrid Colocation Verticals. The scale of our facilities combined with our innovative SDP platform and world-class customer service capability, gives us the ability to meet the needs of a broad set of customers ranging from large hyperscale users to smaller enterprises and government agencies. We believe customers will continue to have evolving and diverse IT needs and will prefer providers that can offer the flexibility, scalability and technology solutions that de-risk their future IT journey. We believe our ability to provide solutions to a broad addressable market enhances our leasing velocity, diversifies our customer mix, results in more balanced lease terms and optimizes cash flows from our assets.
•Diversified, High-Quality Customer Base. As of December 31, 2020, our customer base consists of over 1,200 customers, with our largest customer accounting for approximately 13.1% of our MRR and no others greater than 5.4%. Only five of our customers exceeded 3% of our MRR. Our focus on premium customer service and our ability to grow with their IT needs allows us to achieve a low rental churn rate (which is the MRR lost in the period to a customer intending to fully exit our platform in the near term compared to the total MRR at the beginning of the period).
•Robust In-House Sales Capabilities. Our in-house sales force has deep knowledge of our customers’ businesses and IT infrastructure needs and is supported by sophisticated sales management, reporting and incentive systems. Our internal sales force is structured by product offerings, specialized industry segments and, with respect to our colocation product, by geographical region. Therefore, unlike certain other data center companies, we are less dependent on data center brokers to identify and acquire or renew our customers, which we believe is a key enabler of our integrated strategy.
•Security and Compliance Focused. Our operations and compliance teams, led by seasoned management, are focused on providing a high level of physical security, cybersecurity and compliance solutions and consulting in all of our data centers and integrated across our product offerings.
•Balance Sheet Positioned to Fund Continued Growth. As of December 31, 2020, we had approximately $1.2 billion of available liquidity consisting of cash and cash equivalents, net proceeds available under forward equity agreements, and the ability to borrow under our unsecured senior revolving credit facility and our additional term loan. As we continue to expand our real estate portfolio, we can increase availability under our unsecured credit facilities by an additional $750 million, through an accordion feature, as well as access additional net proceeds available under forward equity agreements.
•Seasoned Management Team with Proven Track Record and Strong Alignment with Our Stockholders. Our senior management team represents a strong balance of significant experience across the commercial real estate and technology services industries. We believe our senior management team’s experience will enable us to capitalize on industry relationships by accessing capital from various sources and by providing an ongoing pipeline of attractive leasing and development opportunities while ensuring the future differentiation of our technology-enabled platform.
•Ability to Increase Our Margins Through Our Operating Leverage. We anticipate that our business and growth strategies can be substantially supported by our existing platform. The scale of our data center facilities provides a significant opportunity to realize positive operating leverage as we achieve higher customer occupancy.
•Continuing to Selectively Expand Our Platform to Other Strategic Markets. We expect to continue to selectively pursue attractive opportunities in strategic locations where we believe our fully integrated platform would give us a competitive advantage in the leasing of a facility or portfolio of assets. We also believe we can integrate additional data center facilities into our platform without adding significant incremental headcount or general and administrative expenses.
•Commitment to Environmental Sustainability. We have committed to leading the industry in sustainability by implementing cost effective, impactful programs that create value for investors and benefit society. We have committed to procuring 100% of our energy from renewable sources by 2025. We build world class LEED-designed facilities, and conserve millions of gallons of water each year through rainwater collection and greywater reuse systems. Our second annual ESG report was released during the year ended December 31, 2020, which highlighted environmental results, introduced new social programs, and discussed our governance structure.
Competition
We compete with developers, owners and operators of data centers and with IT infrastructure companies in the market for data center customers, properties for acquisition and the services of key third-party providers. In addition, we continue to compete with owners and operators of data centers and providers of managed services that follow other business models and may offer one or more of these services. We believe, however, that our product offerings set us apart from our competitors in the data center industry and makes us more attractive to customers, both large and small. In addition, we believe other providers are seeking ways to enter or strengthen their positions in the data center market.
We compete for customers based on factors including location, network connectivity, critical load capacity, flexibility and expertise in the design and operation of data centers. New customers who consider leasing space at our properties and using our products and existing customers evaluating whether to renew or extend a lease also may consider our competitors, including wholesale infrastructure providers and colocation and managed services providers. In addition, our customers may choose to own and operate their own data centers rather than lease from us.
As an owner, developer and operator of data centers, we depend on certain third-party service providers, including engineers and contractors with expertise in the development of data centers and the provision of managed services. The level of competition for the services of specialized contractors and other third-party providers increases the cost of engaging such providers and the risk of delays in operating our data centers and completing our development and redevelopment projects. We also rely upon the services of specialized contractors for the provision of internet connectivity and software-related platforms and services. Competition for their services could lead to a negative impact on our business if they became unavailable to us.
In addition, we face competition for the acquisition of additional properties suitable for the development of data centers from real estate developers in our industry and in other industries and from customers who develop their own data center facilities. Such competition may have the effect of reducing the number of available properties for acquisition, increasing the price of any acquisition and reducing the demand for data center space in the markets we seek to serve.
Regulation
General
Data centers in our markets are subject to various laws, ordinances and regulations, including regulations relating to common areas. We believe that each of our properties has the necessary permits and approvals to operate its business.
Americans With Disabilities Act
Our properties must comply with Title III of the Americans With Disabilities Act (“ADA”) to the extent that such properties are “public accommodations” or “commercial facilities” as defined by the ADA. The ADA may require, for example, removal of structural barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. We believe that our properties are in substantial compliance with the ADA and that we will not be required to make substantial capital expenditures to address the requirements of the ADA. However, noncompliance with the ADA could result in imposition of fines or an award of damages to private litigants. The obligation to make readily
achievable accommodations is an ongoing one, and we will continue to assess our properties and to make alterations as appropriate in this respect.
Environmental Matters
Under various federal, state and local laws and regulations, a current or former owner or operator of real property may be liable for the cost to remove or remediate contamination resulting from the presence or discharge of hazardous or toxic substances, wastes or petroleum products on, under, from or in such property. These costs could be substantial, liability under these laws may attach without regard to whether the owner or operator knew of, or was responsible for, the presence of the contaminants, and the liability may be joint and several. Most of our properties presently contain large underground or aboveground fuel storage tanks for emergency power, which is critical to our operations. If any of our tanks has a release of fuel to the environment, we likely would have to pay to clean up the contamination. In addition, prior owners and operators used some of our current properties for industrial and other purposes, which could have resulted in environmental contamination. Moreover, the presence of contamination or the failure to remediate contamination at our properties may (1) expose us to third-party liability (e.g., for cleanup costs, bodily injury or property damage), (2) subject our properties to liens in favor of the government for damages and costs the government incurs in connection with the contamination, (3) impose restrictions on the manner in which a property may be used or businesses may be operated, or (4) materially adversely affect our ability to sell, lease or develop the real estate or to borrow using the real estate as collateral. We also may be liable for the costs of remediating contamination at off-site disposal or treatment facilities where we arranged for disposal or treatment of hazardous substances at such facilities, without regard to whether we comply with environmental laws in doing so. Finally, there may be material environmental liabilities at our properties of which we are not aware. Any of these matters could have a material adverse effect on us.
Our properties are subject to federal, state, and local environmental, health, and safety laws and regulations and zoning requirements, including those regarding the handling of regulated substances and wastes, emissions to the environment, and fire codes. For instance, our properties are subject to regulations regarding the storage of petroleum for auxiliary or emergency power and air emissions arising from the use of power generators. In particular, generators at our data center facilities are subject to strict emissions limitations, which could preclude us from using critical back-up systems and lead to significant business disruptions at such facilities and loss of our reputation. In addition, we lease some of our properties to our customers who also are subject to such environmental, health and safety laws and zoning requirements. If we, or our customers, fail to comply with these various requirements, we might incur costs and liabilities, including governmental fines and penalties. Moreover, we do not know whether existing requirements will change or whether future requirements will require us to make significant unanticipated expenditures that will materially and adversely affect us. Environmental noncompliance liability also could affect a customer’s ability to make rental payments to us. We require our customers to comply with these environmental and health and safety laws and regulations.
See ITEM 1A. RISK FACTORS, Risks Related to the Real Estate Industry, for additional information regarding these risks.
Privacy and Cybersecurity
We may be directly and/or contractually subject to laws, regulations and policies for protecting sensitive data, consumer privacy and vital national interests, some of which are new or evolving. For example, the U.S. government has promulgated regulations and standards subject to authority provided through the enactment of a number of laws, such as the Health Insurance Portability and Accountability Act (“HIPAA”), the Health Information Technology for Economic and Clinical Health Act (“HITECH Act”), the Gramm-Leach-Bliley Act (“GLBA”), and the Federal Information Security Management Act of 2002 (“FISMA”), which require many corporations and federal, state and local governmental entities to control the security of, access to and configuration of their IT systems. A number of states also have enacted laws and regulations that require covered entities, such as data center operators, to implement and maintain security measures to protect certain types of information, such as Social Security numbers, payment card information, and other types of data, from unauthorized use and disclosure. In recent years, three states have passed biometric data security laws and a number of other states and municipalities are exploring similar laws. QTS designed its policies and practices based on the Illinois Biometric Information Privacy Act (“BIPA”), which we believe is the most comprehensive and restrictive law. In addition, industry organizations have adopted and implemented various security and compliance policies. For example, the Payment Card Industry Security Standards Council has issued its mandatory Payment Card Industry Data Security Standard (“PCI DSS”) which is applicable to all organizations processing payment card transactions. In addition to federal laws, the California Consumer Privacy Act (“CCPA”), which regulates data collection and privacy collection, took effect in 2020. Less than a year after the CCPA went
into effect, California voters passed the California Privacy Rights Act (“CPRA”), which amends various parts of the CCPA. The CPRA, which becomes effective January 1, 2023, will provide significant new rights to California consumers, create new compliance obligations for covered businesses, establish a new enforcement agency, and provide for data minimization and retention obligations. In addition to California, several other states, including Virginia and Washington, continue to consider passing their own comprehensive privacy laws.
In connection with certain of these laws, we are subject to audits and assessments, and we may be required to obtain certain certifications. Audit failure or findings of non-compliance can lead to significant fines or decertification from engaging in certain activities. For example, violations of HIPAA/HITECH Act regulations can lead to fines of up to $1.5 million for all violations of a particular provision in a calendar year and our failure to demonstrate compliance in an annual PCI DSS audit may result in fines and exclusion from payment card networks. Additionally, violations of privacy or security laws, regulations or standards increasingly lead to class-action litigation, which can result in substantial monetary judgments or settlements. We cannot assure you that future laws, regulations and standards, or future interpretations of current laws, regulations and standards, related to privacy and security will not have a material adverse effect on us.
As a company that may process European personal data, we also may be subject to European data protection laws and regulations. The European General Data Protection Regulation (“GDPR”) which took effect in 2018, increases the likelihood of applicability of European data protection law to entities like us, which are established outside the EU but may process data of European data subjects. Under the GDPR, there can be fines of up to €10,000,000 or up to 2% of the global sales, whichever is greater, for certain comparatively minor offenses, or up to €20,000,000 or up to 4% of the global sales, whichever is greater, for more serious offenses. Among other requirements, the GDPR prohibits the transfer of personal information to countries outside of the European Economic Area ("EEA") that are not considered by the European Commission to provide an adequate level of data protection, such as the U.S., unless there is a suitable data transfer solution in place to safeguard personal data. On July 16, 2020, the Court of Justice of the European Union (CJEU) invalidated the European Commission’s adequacy decision that allowed companies, such as QTS, to self-certify under the EU-U.S. Privacy Shield. As a result, organizations are no longer able to use this framework to transfer personal data, and thus must use alternative transfer mechanisms.
Also in 2018, EU member states were required to enact national laws to enforce the EU’s “Directive on security of network and information systems” (the “NIS Directive”), which lays out a number of cybersecurity expectations and notification obligations for regulated entities. In December 2020, the EU released proposed revisions to the NIS Directive that would, among other things, enhance specific cybersecurity requirements and require EU member states to have authority to issue fines of up to €10,000,000 or up to 2% of the global sales, whichever is greater.
Insurance
We carry comprehensive general liability, property, earthquake, flood, business interruption and rental loss insurance covering all of the properties in our portfolio. We also carry coverage for technology professional liability, and cybersecurity. We have selected policy specifications and insured limits that we believe to be appropriate given the relative risk of loss, the cost of the coverage and industry practice. In the opinion of our management, the properties in our portfolio are currently adequately insured and the risk for any failure related to professional liability or a physical or cybersecurity breach are adequately covered by our insurance. We will not carry insurance for generally uninsured losses such as loss from riots, war, wet or dry rot, vermin and, in some cases, flooding and earthquake, because such coverage is not available or is not available at commercially reasonable rates. In addition, although we carry earthquake and flood insurance on our properties in an amount and with deductibles that we believe are commercially reasonable, such policies are subject to limitations in certain flood and seismically active zones. Certain of the properties in our portfolio are located in areas known to be seismically active. See “Risk Factors-Risks Related to the Real Estate Industry-Uninsured and underinsured losses could have a material adverse effect on us.”
Human Capital Management
As evidenced by our Powered by People approach, we believe that how we deliver our services is just as important as what is delivered. This means, among other things, caring for and improving the lives of our current and future employees. We believe our success depends in large part on our ability to recruit, develop and retain a productive and engaged workforce. Accordingly, investing in our employees and their well-being, offering competitive compensation and benefits, and implementing effective and thoughtful human capital management practices constitute key elements of our corporate strategy.
Headcount Data
As of December 31, 2020, our data center solutions were marketed, provided and supported by talented individuals that comprise our workforce of 634 employees. Our Facilities Operations comprised 41% of our total employee base, directly responsible for the operation of our data centers spanning 28 locations. Our management and executive employees comprise 28% of QTS’ workforce.
Recruitment
From our inception, we have been Powered by People and recognize how critical it is to invest in all QTS employees ranging from the way we attract and develop talent through accelerating engagement and fostering retention. Attracting the right talent is a foundation that supports QTS’ continued growth and success. We have broadened our traditional recruiting channels in order to discover top talent, which has, consequently, produced more diverse candidate pools. We have found success in working with organizations focused on serving transitioning service members, minorities and women.
We recognize attracting talent is also driven by ensuring our current employees are engaged. We foster employee engagement by regularly seeking feedback through surveys, focus groups and social media, as further described below. We also prioritize attracting talent by offering our current employees referral bonuses for recruiting colleagues to join QTS.
Diversity and Inclusion
We believe a focus on diversity and inclusion is important to achieve our long-term growth objectives, and we strive to build an even more diverse and inclusive organization. Moreover, we believe that creating an environment where everyone feels they belong is simply the right thing to do. Our ongoing diversity efforts include recruitment at women’s technology group events, targeted recruitment campaigns aimed at attracting diverse employees, involvement with local diverse organizations focused on building bench strength, mentorship programs for women and minorities, inclusive professional groups, and involvement within the Veterans community to target a more diverse workforce. Our Women Inspiring Leadership ("WIL") program is open to all employees to participate in on a voluntary basis. We have seen the success of this internally developed program focused on developing and inspiring leaders through focus panels, training events, partnering with a professional association for women in technology and hosting guest speakers from all backgrounds. WIL also coordinates a mentoring program that is available to all QTS employees. The WIL mentoring program provides structured relationships to drive employees to their potential and provide an opportunity for QTS employees to give back to those earlier in their respective careers. The WIL program creates a natural outlet for QTS employees to have open dialogue around thoughts and feelings related to diversity.
Employee Development/Training
We focus on equipping QTS employees with the tools to grow, connect and reach their fullest potential through our various development programs. Our state-of-the-art training facilities allow us to reach across the organization and bring QTS employees together and foster professional growth, whether it be in person or virtual. We have established leadership competencies for all employees and ensure leaders at every level work to engrain these competencies within their teams through their everyday actions. We believe our leaders are our strongest conduit to fostering our culture and driving employee engagement and are pleased at the success that has come from our Lead the Way program which provides tailored content and development training so that our leaders have the tools they need to be successful.
Our strategy behind investing in employee development has better prepared and equipped employees to serve our clients, increased our internal hiring opportunities, attracted candidates committed to continuous learning and enabled a higher level of employee fulfillment and satisfaction.
Employee Engagement
Maintaining employee engagement, energy and satisfaction is a top priority. We execute on this priority in several ways including acknowledging employee effort and performance, reinforcing behaviors that align with our Core Values, supporting a variety of wellness programs and opportunities and providing competitive compensation based on merit.
We continue to engage employees through our succession planning initiatives, focusing on developing and rewarding QTS employees who are most critical to achieving our business objectives and make the largest impact. We ensure succession
plans are built for our critical roles, leveraging insights to build internal pipelines of candidates. Our leaders complete company-wide talent reviews on a regular basis to ensure we maximize our talent landscape.
We recognize the need to consistently focus on the evolving needs of employees and have introduced several programs to drive engagement and ensure employee needs are being met, including:
•Employee Value Proposition ("EVP") - QTS’ EVP program is comprised of employee volunteers at each QTS location who meet regularly to discuss local employee concerns and feedback. Their direct connection to senior leadership provides QTS senior leadership the ability to quickly understand needs and define where to focus its resources and benefits.
•Employee Experience - QTS’ Employee Experience program focuses on broad topics across the organization that drive employee engagement. In 2020, our areas of focus and key wins addressed tools needed to drive efficiency and ease of use, communication methods and vehicles, and recognition and rewards.
•Wellness - QTS’ Wellness program focuses on mental, physical and financial health and includes quarterly wellness challenges. The top challenges in 2020 were ‘Step It Up’, a friendly step-counting competition to promote physical health, as well as ‘QTS Chef’ featuring themed weekly cooking competitions.
•Facilities Career Pathing - Our Facilities Career Pathing program clearly defines the career roadmap for our facilities employees including the necessary steps to complete for promotion. The program provides clarity, consistency and recognition for those who wish to grow their career at QTS within the facilities organizations.
•QTS Journey - QTS Journey is a robust onboarding initiative which brings new employees from across the organization together to efficiently learn about QTS’ business and functions, build an immediate network and enable quick contributions and performance.
•Eagle Club - The purpose of the QTS Eagle Club is to give recognition and acknowledgement to employees for their exceptional contributions and accomplishments within their role over a 12-month period.
Community Service and Volunteerism
Community service and volunteerism are pillars of our culture and engrained in our people. Every year, QTS provides all QTS employees three (3) paid days to volunteer and give back to QTS communities. While many volunteer events were impacted by the COVID-19 pandemic during 2020, our employees continued to support the local communities in which we operate in various forms, including donations to food banks and hosting toy and winter coat drives.
Offices
Our executive headquarters is located at 12851 Foster Street, Overland Park, Kansas 66213, where our telephone number is (913) 814-9988. We believe that our current offices are adequate for our present operations; however, based on the anticipated growth of our company, we may add regional offices depending upon our future operational needs.
Available Information
Our Internet website address is www.qtsdatacenters.com. You can obtain on our website, free of charge, a copy of our Annual Report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we electronically file such reports or amendments with, or furnish them to, the SEC. Our Internet website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K.
Also available on our website, free of charge, are copies of our Code of Business Conduct and Ethics, our Corporate Governance Guidelines, and the charters for each of the committees of our board of directors-the Audit Committee, the Nominating and Corporate Governance Committee, the Compensation Committee and the Security Committee.

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ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
Set forth below are the risks that we believe are material to our stockholders. You should carefully consider the following risks in evaluating our Company and our business. If any of the risks discussed in this Form 10-K were to occur, our business, prospects, financial condition, liquidity, funds from operations and results of operations and our ability to service our debt and make distributions to our stockholders could be materially and adversely affected, which we refer to herein
collectively as a “material adverse effect on us,” the market price of our common stock could decline significantly and you could lose all or part of your investment. Some statements in this Form 10-K, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Special Note Regarding Forward-Looking Statements” at the beginning of this Form 10-K.
Risks Related to COVID-19
Our business may be adversely affected by the ongoing coronavirus (COVID-19) pandemic or by future outbreaks of highly infectious or contagious diseases or other public health crises.
The ongoing coronavirus (COVID-19) pandemic is causing significant disruptions to the United States and global economy and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak is rapidly evolving and, as cases, and new strains, of the virus have continued to be identified, many countries, including the United States, have reacted by instituting or reinstituting quarantines, restrictions on travel and mandatory closures of businesses. The COVID-19 pandemic or any other future outbreaks of highly infectious or contagious diseases or other public health crises, and any preventative or protective actions that we or others may take in response thereto, may result in business and/or operational disruption for us and/or our customers, suppliers, contractors, capital sources and other business partners. For example, our customers’ businesses have been and may continue to be disrupted due to the COVID-19 pandemic, which affected their ability to make rental payments to us, and if this were to continue to occur, our revenues could be negatively affected.
Furthermore, the COVID-19 pandemic has and may continue to negatively impact our supply chain, increase the costs of development and cause delays in the construction or development of our data centers due to delays in the ability to obtain permits, disruptions in the availability of contractors, disruptions in the supply of materials or products or the inability of our contractors to perform on a timely basis or at all, and it may not be possible to find replacement products or supplies. Any such disruptions or delays such could adversely affect our business and growth.
Additional factors that could negatively impact our ability to successfully operate during or following the COVID-19 pandemic or similar public health crises, or that could otherwise significantly adversely impact and disrupt our business, financial condition and results of operations, include, but are not limited to, the risk of unanticipated operating costs and expenses related to measures taken to ensure health and safety and business continuity; difficulty in accessing debt and equity capital on attractive terms, or at all, or a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions, which could affect our access to capital necessary to fund our operations and liquidity needs; the increased risk of cyber incidents and disruptions to our internal control procedures due to increased teleworking and state and local stay-at-home orders, and the processes, procedures and controls that we have implemented to help mitigate cyber risks may not be sufficient or that our internal control procedures may experience challenges or delays; the continued service and availability of personnel, including our executive officers and other leaders who are part of our management team and our ability to recruit, attract and retain skilled personnel to the extent our management or personnel are impacted in significant numbers or in other significant ways by the outbreak of this or another pandemic or epidemic disease and are not available or allowed to conduct work; the risk of asset impairments due to future changes in expectations for sales, earnings and cash flows related to fixed assets, intangible assets and goodwill; and increased susceptibility to litigation related to, among other things, the financial impacts of COVID-19 on our business.
Any of the foregoing risks and developments, as well as others, could have a material adverse effect on our business, financial condition and results of operations. The extent to which the COVID-19 pandemic impacts our business and operations remains largely uncertain and will depend on future developments that are highly uncertain and cannot be predicted with confidence, including the duration and scope of the pandemic, new information that may emerge concerning the severity of COVID-19, the response of the overall economy and financial markets and the actions taken to contain COVID-19 or treat its impact, such as the availability and efficacy of the COVID-19 vaccine, government actions, laws or orders or any changes or amendments thereto and the success of any lifting or easing of, or the risk of any premature lifting or easing of, any such restrictions, among others. The COVID-19 pandemic presents material uncertainty and risk with respect to our business, financial performance, and results of operations and may also exacerbate many of the risks identified below.
Risks Related to Our Business and Operations
Because we are focused on the ownership, operation, redevelopment and/or construction of data centers, any decrease in the demand for data center space could have a material adverse effect on us.
Because our portfolio consists entirely of data centers, or land to be developed or converted into data centers, we are subject to risks inherent in investments in a single industry. Adverse developments in the data center market or in the industries in which our customers operate could lead to a decrease in the demand for data center space, which could have a greater material adverse effect on us than if we owned a more diversified real estate portfolio. These adverse developments could include: a decline in the technology industry, such as a decrease in the use of mobile or web-based commerce, industry slowdowns, business layoffs or downsizing, relocation of businesses, increased costs of complying with existing or new government regulations and other factors; a slowdown in the growth of the Internet generally as a medium for commerce and communication; a downturn in the market for data center space generally such as oversupply of or reduced demand for space; and the rapid development of new technologies or the adoption of new industry standards that render our or our customers’ current products and services obsolete or unmarketable and, in the case of our customers, that contribute to a downturn in their businesses, increasing the likelihood of a default under their leases or that they become insolvent or file for bankruptcy protection. To the extent that any of these or other adverse conditions occur, they are likely to impact market rents for, and cash flows from, our data center space, which could have a material adverse effect on us.
Our data center infrastructure may become obsolete or unmarketable and we may not be able to upgrade our power, cooling, security or connectivity systems cost-effectively or at all.
The markets for the data centers we own and operate, as well as certain of the industries in which our customers operate, are characterized by rapidly changing technology, evolving industry standards, frequent new service introductions, shifting distribution channels and changing customer demands. As a result, the infrastructure at our data centers may become obsolete or unmarketable due to demand for new processes and/or technologies, including, without limitation: (i) new processes to deliver power to, or eliminate heat from, computer systems; (ii) customer demand for additional redundancy capacity or, conversely, reduced redundancy capacity; or (iii) new technology that permits lower levels of critical load and heat removal than our data centers are currently designed to provide. In addition, the systems that connect our data centers to the Internet and other external networks may become outdated, including with respect to latency, reliability and diversity of connectivity. When customers demand new processes or technologies, we may not be able to upgrade our data centers on a cost-effective basis, or at all, due to, among other things, increased expenses to us that cannot be passed on to customers or insufficient revenue to fund the necessary capital expenditures. The obsolescence of our power and cooling systems and/or our inability to upgrade our data centers, including associated connectivity, could reduce revenue at our data centers and could have a material adverse effect on us. Furthermore, potential future regulations that apply to industries we serve may require customers in those industries to seek specific requirements from their data centers that we are unable to provide. These may include physical security regulations applicable to the defense industry and government contractors and privacy and security requirements applicable to the financial services and health care industries. If such regulations were adopted, we could lose customers or be unable to attract new customers in certain industries, which could have a material adverse effect on us.
We face considerable competition in the data center industry and may be unable to renew existing leases, lease vacant space or re-let space on more favorable terms, or at all, as leases expire, which could have a material adverse effect on us.
Leases representing approximately 24% of our leased raised floor and approximately 33% of our annualized rent (including all month-to-month leases), in each case as of December 31, 2020, are scheduled to expire by the end of 2021. The global multi-tenant data center market is highly fragmented and we compete with numerous developers, owners and operators in the data center industry, including managed service providers and other REITs, some of which own or lease properties similar to ours, or may do so in the future, in the same submarkets in which our properties are located. Our competitors may have significant advantages over us, including greater name recognition, longer operating histories, higher operating margins, pre-existing relationships with current or potential customers, greater financial, marketing and other resources, and access to greater and less expensive power. These advantages could allow our competitors to respond more quickly to strategic opportunities or changes in our industry or markets. If our competitors offer space at rental rates below current market rates or below the rental rates we currently charge our customers, or if our competitors offer products and services in a greater variety, that are more state-of-the-art or that are more competitively priced than the products and services we offer, we may lose customers or be unable to attract new customers without lowering our rental rates and improving the quality, mix and technology of our products and services. We cannot assure you that we will be able to lease vacant space, renew leases with our existing customers or re-let space to new customers if our current customers do not renew their leases. Even if our
customers renew their leases or we are able to re-let the space, the terms (including rental rates and lease periods) and costs (including capital) of renewal or re-letting may be less favorable than the terms of our current leases. In addition, there can be no assurances that the type of space and/or services currently available at our properties will be sufficient to retain current customers or attract new customers in the future. Although we offer a full spectrum of data center products from hyperscale to hybrid colocation to certain managed services, our competitors that specialize in only one of our products and service offerings may have competitive advantages in that space. If rental rates for our properties decline, we are unable to lease vacant space, our existing customers do not renew their leases or we do not re-let space from expiring leases, in each case, on favorable terms, it could have a material adverse effect on us.
Our customers may choose to develop new data centers, expand their own existing data centers, or choose to go to a cloud provider, which could result in the loss of one or more key customers or reduce demand and pricing for our data centers and could have a material adverse effect on us.
Some of our customers may develop or expand their own data center facilities or choose to take their data to a cloud provider. Our customers may also merge with or be acquired by other entities that are not our customers, and may discontinue or reduce the use of our data centers in the future. If any of these events occurs with respect to our key customers, it could result in a loss of business to us or put downward pressure on our pricing. If we lose a customer, there is no assurance that we would be able to replace that customer at the same or a higher rate, or at all, which could have a material adverse effect on us.
The bankruptcy, insolvency or financial difficulties of a major customer could have a material adverse effect on us.
The bankruptcy or insolvency of a major customer could have significant consequences for us. If any customer becomes a debtor in a case under the federal Bankruptcy Code, we cannot evict the customer solely because of the bankruptcy. In addition, the bankruptcy court might authorize the customer to reject and terminate its lease with us. Our claim against the customer for unpaid future rent would be subject to a statutory cap that might be substantially less than the remaining rent owed under the lease. In either case, our claim for unpaid rent likely would not be paid in full. If any of our significant customers were to become bankrupt or insolvent or suffer a downturn in their business, they may fail to renew, or reject or terminate, their leases with us and/or fail to pay unpaid or future rent owed to us, which could have a material adverse effect on us.
Any inability, temporarily or permanently, to fully and consistently operate either of our Atlanta (DC-1) and Atlanta-Suwanee properties could have a material adverse effect on us.
Our two largest wholly-owned properties in terms of annualized rent, Atlanta (DC-1) (formerly known as our Atlanta Metro facility) and Atlanta-Suwanee, collectively accounted for approximately 39% of our annualized rent as of December 31, 2020. Therefore, any inability, temporarily or permanently, to fully and consistently operate either of these properties could have a material adverse effect on us. In addition, because both properties are located in the Atlanta metropolitan area, we are particularly susceptible to adverse developments in that area, including as a result of natural disasters (such as hurricanes, floods, tornadoes and other events), that could cause, among other things, permanent damage to the properties and electrical power outages that may last beyond our backup and alternative power arrangements. Further, Atlanta (DC-1) and Atlanta-Suwanee account for several of our largest leases in terms of MRR. Any nonrenewal, credit or other issues with large customers could adversely affect the performance of these properties.
We may be adversely affected by the economies and other conditions of the markets in which we operate, particularly in Atlanta and other metropolitan areas, where we have a high concentration of our data center properties.
We are susceptible to adverse economic or other conditions in the geographic markets in which we operate, such as periods of economic slowdown or recession, the oversupply of, or a reduction in demand for, data centers in a particular area, industry slowdowns, layoffs or downsizings, relocation of businesses, increases in real estate and other taxes and changing demographics. The occurrence of these conditions in the specific markets in which we have concentrations of properties could have a material adverse effect on us. Our Atlanta area data centers and our data centers in Virginia (including Richmond, Ashburn, the Vault facility in Dulles, Virginia and leased facilities acquired in 2015), accounted for approximately 42% and 16%, respectively, of our consolidated annualized rent as of December 31, 2020. We also own a 50% interest in the Manassas, Virginia data center that was contributed to an unconsolidated entity, as well as a 100% interest in a new data center for which we have commenced construction in Manassas, Virginia. As a result, we are particularly susceptible to adverse market conditions in these areas. In addition, other geographic markets could become more attractive for developers, operators and customers of data center facilities based on favorable costs and other conditions to construct or operate data center facilities in those markets. For example, some states have created tax incentives for developers and operators to locate data center facilities in their jurisdictions. These changes in other markets may increase demand in those markets and result in a corresponding decrease in demand in our markets. Any adverse economic or real estate developments in the geographic markets in which we have a concentration of properties, or in any of the other markets in which we operate, or any decrease in demand for data center space resulting from the local business climate or business climate in other markets, could have a material adverse effect on us.
Future consolidation and competition in our customers’ industries could reduce the number of our existing and potential customers and make us dependent on a more limited number of customers.
Mergers or consolidations in our customers’ industries in the future could reduce the number of our existing and potential customers and make us dependent on a more limited number of customers. If our customers merge with or are acquired by other entities that are not our customers, they may discontinue or reduce the use of our data centers in the future. Any of these developments could have a material adverse effect on us.
Our government customers, contracts and subcontracts may subject us to additional risks, including early termination, audits, investigations, sanctions and penalties, which could have a material adverse effect on us.
We derive revenue from contracts with the U.S. government, state and local governments and from subcontracts with government contractors. Some of these customers may be entitled to terminate all or part of their contracts at any time, without cause.
To the extent that funding underlying any of our federal, state or local government contracts or subcontracts is reduced or eliminated, whether by failure to get Congressional approval or other funding authorization or as a result of partial U.S. government shutdowns, there is an increased risk of termination by the counterparties, which could have a material adverse effect on us.
Government contracts and subcontracts also are generally subject to government audits and investigations. To the extent we fail to comply with laws or regulations related to such contracts, any such audit or investigation of us could result in various civil and criminal penalties and administrative sanctions, including termination of such contracts, refund of a portion of fees received, forfeiture of profits, suspension of payments, fines and suspensions or debarment from future government business, any of which could have a material adverse effect on us.
We derive significant revenue from our largest customers, and the loss or significant reduction in business from one or more of these customers could have a material adverse effect on us.
Our top 10 customers collectively accounted for approximately 39% of our portfolio’s total MRR as of December 31, 2020. We have one customer that accounted for approximately 13.1% of our MRR and the next largest customer accounted for only 5.4% of our MRR as of December 31, 2020. As a result, if we lose and are unable to replace one or more of these customers, if these customers significantly reduce their business with us or default on their obligations to us or if we choose not to enforce, or to enforce less vigorously, any rights that we may have now or in the future against these significant customers because of our desire to maintain our relationship with them, our business, financial condition and results of operations, including the amount of cash available for distribution to our stockholders, could be materially adversely affected.
Our future growth depends upon the successful expansion or redevelopment of our existing properties, the development of new properties, and any delays or unexpected costs in such expansion, redevelopment or development could have a material adverse effect on us.
We have initiated or are contemplating the expansion or redevelopment of multiple of our existing data center properties including: Richmond, Irving, Piscataway, Hillsboro, Chicago, Santa Clara, Ashburn (DC-1), Atlanta (DC-2) and the Manassas facility which was contributed to an unconsolidated entity. Our future growth depends upon the successful completion of these efforts, as well as on development of new properties such as Ashburn (DC-2) and Manassas (DC-2). With respect to our current and any future expansions, developments and redevelopments, we will be subject to certain risks, including the following:
•financing risks;
•increases in interest rates or credit spreads;
•site selection and lack of availability of adequate properties for development;
•construction and/or lease-up delays;
•changes to plans or specifications;
•construction site accidents or other casualties;
•lack of availability of, and/or increased costs for, specialized data center components, including long lead-time items such as generators;
•cost overruns, including construction or labor costs that exceed our original estimates;
•failure of contractors to perform on a timely basis or at all, or other misconduct on the part of contractors;
•contractor and subcontractor disputes, strikes, labor disputes or supply disruptions;
•environmental issues, fire, flooding, earthquakes and other natural disasters;
•delays with respect to obtaining or the inability to obtain necessary zoning, occupancy, environmental, land use and other governmental permits, and changes in zoning and land use laws, particularly with respect to build-outs at our Santa Clara facility;
•failure to achieve expected occupancy and/or rental rate levels within the projected time frame, if at all; and
•sub-optimal mix of products.
In addition, with respect to any expansions, developments or redevelopments, we will be subject to risks and, potentially, unanticipated costs associated with obtaining access to a sufficient amount of power from local utilities, including the need, in some cases, to develop utility substations on our properties in order to accommodate our power needs, constraints on the amount of electricity that a particular locality’s power grid is capable of providing at any given time, and risks associated with the negotiation of long-term power contracts with utility providers. Local utilities may also experience unexpected costs relating to the production or transmission of power, including environmental and other variability associated with downed utility lines. Similarly, we will be subject to the risks and, potentially, unanticipated costs associated with obtaining access to sufficient internet, telecommunication and fiber optic network connectivity. We may not be able to successfully negotiate such contracts on favorable terms, or at all. Any inability to negotiate utility or telecommunications contracts on a timely basis or on favorable terms or in volumes sufficient to supply the critical load and connectivity anticipated for future developments could have a material adverse effect on us.
While we intend to develop data center properties primarily in markets with which we are familiar, we have and may in the future acquire properties in new geographic markets where we expect to achieve favorable risk-adjusted returns on our investment. We may not possess the same level of familiarity with development or redevelopment in these new markets and therefore cannot assure you that our development activities will generate attractive returns. Furthermore, development and redevelopment activities, regardless of whether they are ultimately successful, also typically require a substantial portion of our management’s time and attention. This may distract our management from focusing on other operational activities of our business.
These and other risks could result in delays, increased costs and a lower stabilized return on invested capital and could prevent completion of our development and expansion projects once undertaken, which could have a material adverse effect on us.
We may commence development of a data center facility prior to having received any commitments from customers to lease any space in the facility and any extended vacancies could have a material adverse effect on our business, results of operations and financial condition.
As part of our growth strategy, we intend to commit substantial operational and financial resources to develop new data centers and expand existing ones. However, we may not require pre-leasing commitments from customers before we develop or expand a data center, and we may not have sufficient customer demand to lease the new data center space when completed. Once development of a data center is complete, we incur a certain amount of operating expenses even if there are no tenants occupying the space. A lack of customer demand for data center space or excess capacity in the data center market could impair our ability to achieve our expected rate of return on our investment, which could have a material adverse effect on our financial condition, operating results and the market price of our common stock.
The ground sublease structure at our Santa Clara property could prevent us from developing the property as we desire, and we may have to incur additional expenses prior to the end of the ground sublease to restore the property to its prelease state.
Our interest in the Santa Clara property is subject to a ground sublease granted by a third party, as ground sublessor, to our indirect subsidiary Quality Investment Properties Santa Clara, LLC (“QIP Santa Clara”). The ground sublease terminates in 2052 and we have two options to extend the original term for consecutive ten-year terms. The ground sublease structure presents special risks. We, as ground sublessee, will own all improvements on the land, including the buildings in which the data centers are located during the term of the ground sublease. Upon the expiration or earlier termination of the ground sublease, however, the improvements on the land will become the property of the ground sublessor. Unless we purchase a fee interest in the land and improvements subject to the ground sublease, we will not have any economic interest in the land or improvements at the expiration of the ground sublease. Therefore, we will not share in any increase in value of the land or improvements beyond the term of the ground sublease, notwithstanding our capital outlay to purchase our interest in the data center or fund improvements thereon, and will lose our right to use the building on the subleased property. In addition, upon the expiration of the ground sublease, the ground sublessor may require the removal of the improvements or the restoration of the improvements to their condition prior to any permitted alterations at our sole cost and expense. If we do not meet a certain net worth test, we also will be required to provide the ground sublessor with a bond in connection with such removal and restoration requirements. In addition, while we generally have the right to undertake alterations to the demised premises, the ground sublessor has the right to reasonably approve the quality of such work and the form and content of certain financial information of QIP Santa Clara. The ground sublessor need not give its approval to alterations if it or its affiliate determines that the work will have a material adverse impact on the fee interest in property adjacent to the demised premises. In addition, though the ground sublease provides that we may exercise the rights of ground lessor in the event of a rejection of the master ground lease, each of the master ground lease and the ground sublease may be rejected in bankruptcy. Finally, in the event of a condemnation, the ground lessor is entitled to an allocable share of any condemnation proceeds. The ground sublease, however, does contain important nondisturbance protections and provides that, in event of the termination of the master ground lease, the ground sublease will become a direct lease between the ground lessor and QIP Santa Clara.
We depend on third parties to provide Internet, telecommunication and fiber optic network connectivity to the customers in our data centers, and any delays or disruptions in service, availability, or additional costs could have a material adverse effect on us.
Our products and infrastructure rely on third-party service providers. In particular, we depend on third parties to provide Internet, telecommunication and fiber optic network connectivity to the customers in our data centers, and we have no control over the reliability of the services provided by these suppliers. Our customers may in the future experience difficulties due to service failures unrelated to our systems and services. Any Internet, telecommunication or fiber optic network failures may result in significant loss of connectivity to our data centers, which could subject the company to potential litigation or reduce the confidence of our customers and could consequently impair our ability to retain existing customers or attract new customers and have a material adverse effect on us.
Similarly, we depend upon the presence of Internet, telecommunications and fiber optic networks serving the locations of our data centers in order to attract and retain customers. The construction required to connect multiple carrier facilities to our data centers is complex, requiring a sophisticated redundant fiber network, and involves matters outside of our control, including regulatory requirements and the availability of construction resources. Each new data center that we develop requires significant amounts of capital for the construction and operation of a sophisticated redundant fiber network. We believe that the availability of carrier capacity affects our business and future growth. We cannot assure you that any carrier will elect to
offer its services within our data centers or that once a carrier has decided to provide connectivity to our data centers that it will continue to do so for any period of time or at a cost that is feasible to our customers. Furthermore, some carriers are experiencing business difficulties or have announced consolidations or mergers. As a result, some carriers may be forced to downsize or terminate connectivity within our data centers, which could adversely affect our customers and could have a material adverse effect on us.
Power outages, limited availability of electrical resources and increased energy costs could have a material adverse effect on us.
Our data centers are subject to electrical power outages, regional competition for available power and increased energy costs. We attempt to limit exposure to system downtime by using backup generators and power supplies generally at a significantly higher operating cost than we would pay for an equivalent amount of power from a local utility. However, we may not be able to limit our exposure entirely even with these protections in place. Power outages, which have and may last beyond our backup and alternative power arrangements, may harm our customers and our business. During power outages, changes in humidity and temperature can cause permanent damage to servers and other electrical equipment. We could incur financial obligations or be subject to lawsuits by our customers in connection with a loss of power. Any loss of services or equipment damage could reduce the confidence of our customers in our services and could consequently impair our ability to attract and retain customers, which could have a material adverse effect on us.
In addition, power and cooling requirements at our data centers are increasing as a result of the increasing power and cooling demands of modern servers. Since we rely on third parties to provide our data centers with sufficient power to meet our customers’ needs, and we generally do not control the amount of power drawn by our customers, our data centers could have a limited or inadequate amount of electrical resources.
We also may be subject to risks and unanticipated costs associated with obtaining power from various utility companies. Utilities that serve our data centers may be dependent on, and sensitive to price increases for, a particular type of fuel, such as coal, oil or natural gas. The price of these fuels and the electricity generated from them could increase as a result of proposed legislative measures related to climate change or efforts to regulate carbon emissions. For example, under the U.S. Environmental Protection Agency’s “Affordable Clean Energy” rule, coal-fired power plants are required to make efficiency improvements to reduce their greenhouse gases emissions, and they may increase their prices to make these improvements. While our wholesale customers are billed on a pass-through basis for their direct energy usage, our retail customers pay a fixed cost for services, including power, so any excess energy costs above such fixed costs are borne by us. Although, for technical and practical reasons, our retail customers often use less power than the amount we are required to provide pursuant to their leases, there is no assurance that this will always be the case. Although we have a diverse customer base, the concentration and mix of our customers may change and increases in the cost of power at any of our data centers would put those locations at a competitive disadvantage relative to data centers served by utilities that can provide less expensive power. This could adversely affect our relationships with our customers and hinder our ability to operate our data centers, which could have a material adverse effect on us.
We rely on the proper and efficient functioning of computer and data-processing systems, and a large-scale malfunction could have a material adverse effect on us.
Our ability to keep our data centers operating depends on the proper and efficient functioning of computer and data-processing systems. Since computer and data-processing systems are susceptible to malfunctions and interruptions, including those due to equipment damage, power outages, cyber-attacks and a range of other hardware, software and network problems, we cannot guarantee that our data centers will not experience such malfunctions or interruptions in the future. Additionally, expansions and developments in the products and services that we offer, including our managed services, could increasingly add a measure of complexity that may overburden our data center, network resources and human capital, making service interruptions and failures more likely. A significant or large-scale malfunction or interruption of one or more of any of our data centers’ computer or data-processing systems could adversely affect our ability to keep such data centers running efficiently. If a malfunction results in a wider or sustained disruption to business at a property, it could have a material adverse effect on us.
Interruptions in our provision of products or services could result in a loss of customers and damage our reputation, which could have a material adverse effect on us.
Our business and reputation could be adversely affected by any interruption or failure in the provision of products and services, even if such events occur as a result of a natural disaster, human error, landlord maintenance failure, water damage, fiber cuts, extreme temperature or humidity, sabotage, vandalism, terrorist acts, unauthorized entry or other unanticipated problems. If a significant disruption occurs, we may be unable to implement disaster recovery or security measures in a timely manner or, if and when implemented, these measures may not be sufficient or could be circumvented through the reoccurrence of a natural disaster or other unanticipated problem, or as a result of accidental or intentional actions. Furthermore, such disruptions can cause damage to servers and may result in legal liability where interruptions in service violate service commitments in customer leases. Resolving network failures or alleviating security problems also may require interruptions, delays, or cessation of service to our customers. Accordingly, failures in our products and services, including problems at our data centers or network interruptions may result in significant liability, a loss of customers and damage to our reputation, which could have a material adverse effect on us.
Security breaches at our facilities or affecting our networks may result in disclosure of sensitive customer information that could harm our reputation and expose us to liability from customers and government agencies, and we may incur increasing or uncertain compliance and prevention costs, all of which could have a material adverse effect on us.
Our network could be subject to unauthorized access, computer viruses, cyber-attacks or cyber intrusions and other disruptive problems, including malware, computer viruses and attachments to e-mails caused by customers, employees, or others inside or outside of our organization. Our exposure to cybersecurity threats and negative consequences of security breaches will likely increase as we store increasing amounts of customer data. Additionally, as we increasingly market the security features in our data centers, our data centers may be further targeted by cyber attackers seeking to compromise data security. Because a portion of our business focuses on serving U.S. government agencies and their contractors with a general focus on data security and information technology, we may be especially likely to be targeted by cyber-attacks, including by organizations or persons that may be affiliated with nation-states or otherwise hostile to the U.S. government. Despite our activities to maintain the security and integrity of our networks and related systems, there can be no assurance that these activities will be effective.
Unauthorized access, computer viruses or other disruptive problems could lead to interruptions, delays and cessation of service to our customers and the compromise or loss of our, our customers’ or our customers’ end-users’ information. We routinely process, store and transmit large amounts of data for our customers, which includes sensitive and personally identifiable information. Loss or compromise of this data could cost us monetarily, in terms of lost business or damages, as well as loss of customer goodwill and harm to our reputation, even if we do not ourselves process the data. Unauthorized access could also potentially jeopardize the security of our confidential information or confidential information of our customers or our customers’ end-users, which might expose us to liability from customers and from the government agencies that regulate us or our customers, as well as harm our brand and deter potential customers from renting our space and purchasing our services. For example, violations of HIPAA and its implementing regulations, as amended by the HITECH Act, can lead to fines of up to $1.5 million for identical violations of a particular provision in a calendar year, and under the GDPR, there can be fines of up to €10,000,000 or up to 2% of the global sales, whichever is greater, for certain comparatively minor offenses and up to €20,000,000 or up to 4% of the global sales, whichever is greater, for more serious offenses. Additionally, violations of privacy or cybersecurity laws (including the CCPA and recently-passed CPRA), regulations or standards increasingly lead to class-action and other types of litigation, which can result in substantial monetary judgments or settlements. We also may suffer increased remediation, security, and insurance costs in the event of a security breach. Therefore, any such security breaches could have a material adverse effect on us.
In addition, the regulatory framework around data custody, cybersecurity, data privacy and breaches varies by jurisdiction and is an evolving area of law. We cannot predict how future laws, regulations and standards, or future interpretations of current laws, regulations and standards, related to privacy and cybersecurity will affect our business, and we cannot predict the cost of compliance. Furthermore, we may be required to expend significant attention and financial resources to protect against physical or cybersecurity breaches that could result in the misappropriation of our or our customers’ information. As techniques used to breach security change frequently, and generally are not recognized until launched against a target, we may not be able to implement security measures in a timely manner or, if and when implemented, we may not be able to determine the extent to which these measures could be circumvented. Any internal or external breach in our network could severely harm our business and result in costly litigation and potential liability for us. We also may be liable for, and suffer reputational harm if, any of our third-party service providers or subcontractors suffers security breaches. To the extent our
customers demand that we accept unlimited liability and to the extent there is a competitive trend to accept it, such a trend could affect our ability to retain these limitations in our leases at the risk of losing the business. Such a trend may be particularly likely to occur with regard to our managed services. These potential costs and liabilities could have a material adverse effect on us.
Any inability to recruit or retain qualified personnel, or maintain access to key third-party service providers and software developers, could have a material adverse effect on us.
We must continue to identify, hire, train, and retain IT professionals, technical engineers, operations employees, and sales and senior management personnel who maintain relationships with our customers and who can provide the technical, strategic and marketing skills required to grow our company, develop and expand our data centers, maximize our rental and services income and achieve the highest sustainable rent levels at each of our facilities. There is a shortage of qualified personnel in these fields, and we compete with other companies for the limited pool of these personnel. Competitive pressures may require that we enhance our pay and benefits package to compete effectively for such personnel. An increase in these costs or our inability to recruit and retain necessary technical, managerial, sales and marketing personnel or to maintain access to key third-party providers could have a material adverse effect on us. For example, for certain products, we partner or collaborate with third parties such as software developers. Our failure to maintain such relationships could impact our ability to provide certain services, in particular, government-related services, which could have a material adverse effect on us.
We may be unable to identify and complete acquisitions on favorable terms or at all, which may inhibit our growth and have a material adverse effect on us.
We continually evaluate the market of available properties and businesses and may acquire additional properties and businesses when opportunities exist. Our ability to acquire properties and businesses on favorable terms is subject to the following significant risks:
•we may be unable to acquire a desired property or business because of competition from other real estate investors with significant resources and/or access to capital, including both publicly traded REITs and institutional investment funds;
•even if we are able to acquire a desired property or business, competition from other potential acquirers may significantly increase the purchase price or result in other less favorable terms;
•even if we enter into agreements for the acquisition of a desired property or business, these agreements are subject to customary conditions to closing, including completion of due diligence investigations to our satisfaction, and we may incur significant expenses for properties or businesses we never actually acquire;
•we may be unable to finance acquisitions on favorable terms or at all; and
•we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to such liabilities such as liabilities for clean-up of environmental contamination, claims by customers, vendors or other persons dealing with the former owners of the properties and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.
Any inability to complete property or business acquisitions on favorable terms or at all could have a material adverse effect on us.
We may be unable to successfully integrate and operate acquired properties and achieve the intended benefits of our other acquisitions, which could have a material adverse effect on us.
Even if we are able to make acquisitions on favorable terms, our ability to successfully integrate and operate them is subject to various risks. We may be unable to accomplish the integration of an acquired property smoothly, successfully or within anticipated cost estimates. The diversion of our management’s attention from our operations to any such integration efforts, and any difficulties encountered, could prevent us from realizing the full benefits we anticipated to result from such acquisition and could have a material adverse effect on us. Additional risks include, among others:
•we may spend more than budgeted amounts to make necessary improvements or renovations to acquired properties, as well as require substantial management time and attention;
•the inability to successfully integrate the operations, particularly acquisitions of operating businesses or portfolios of properties, into our existing operations, maintain consistent standards, controls, policies and procedures, or realize the benefits we anticipate of the acquisition within the anticipated timeframe or at all;
•the inability to effectively monitor and manage our expanded business, retain customers, suppliers and business partners, attract new customers, retain key employees or attract highly qualified new employees;
•anticipated future synergies, accretion, revenues, cost savings or operating metrics may fail to materialize or our estimates thereof may prove to be inaccurate;
•the acquired business may fail to perform as expected;
•certain portions of businesses we may acquire may be located in new markets, including foreign markets, in which we have not previously operated and in which we may face risks associated with an incomplete knowledge or understanding of the local market;
•the market price of our common stock may decline if we do not achieve the benefits we anticipate of the transaction as rapidly or to the extent anticipated by financial or industry analysts or if the effect of the transaction on our financial results is not consistent with the expectations of financial or industry analysts; and
•potential unknown liabilities with limited or no recourse against the seller and unforeseen increased expenses related to the acquisitions.
We cannot assure you that we will be able to complete any integration without encountering difficulties or that any such difficulties will not have a material adverse effect on us. Failure to realize the intended benefits of an acquisition could have a material adverse effect on us.
We may be subject to unknown or contingent liabilities related to properties or businesses that we acquire, which may result in damages and investment losses.
Assets and entities that we have acquired or may acquire in the future may be subject to unknown or contingent liabilities for which we may have limited or no recourse against the sellers. Unknown or contingent liabilities might include liabilities for clean-up or remediation of environmental conditions, claims of customers, vendors or other persons dealing with the acquired entities, tax liabilities and other liabilities whether incurred in the ordinary course of business or otherwise. In the future we may enter into transactions with limited representations and warranties or with representations and warranties that do not survive the closing of the transactions, in which event we would have no or limited recourse against the sellers of such properties. Customers increasingly are looking to pass through their regulatory obligations and other liabilities to their outsourced data center providers and we may not be able to limit our liability or damages in an event of loss suffered by such customers whether as a result of our breach of agreement or otherwise.
While we usually require the sellers to indemnify us with respect to breaches of representations and warranties that survive, such indemnification is often limited and subject to various materiality thresholds, a significant deductible or an aggregate cap on losses. As a result, there is no guarantee that we will recover any amounts with respect to losses due to breaches by the sellers of their representations and warranties. In addition, the total amount of costs and expenses that we may incur with respect to liabilities associated with acquired properties and entities may exceed our expectations. Finally, indemnification agreements between us and the sellers typically provide that the sellers will retain certain specified liabilities relating to the assets and entities acquired by us. While the sellers are generally contractually obligated to pay all losses and other expenses relating to such retained liabilities, there can be no guarantee that such arrangements will not require us to incur losses or other expenses as well. Additionally, in connection with our acquisitions, we may assume agreements with customers that may subject us to greater liability for an event of loss compared to our typical customer agreements. If an event of loss occurred, we could be liable for material monetary damages and could incur significant legal fees in defending against such an action. Any of these matters could have a material adverse effect on us.
Our international operations expose us to regulatory, currency, legal, tax and other risks distinct from those faced by us in the United States.
Although our operations are primarily based in the United States, we also have a presence outside of the United States. Foreign operations involve risks not generally associated with investments in the United States, including:
•our limited knowledge of and relationships with customers, contractors, suppliers or other parties in these markets;
•complexity and costs associated with managing international development and operations;
•difficulty in hiring qualified management, sales and other personnel and service providers;
•differing employment practices and labor issues;
•multiple, conflicting, changing and uncertain legal, regulatory, entitlement and permitting, and tax and treaty environments;
•rapid changes in governmental, economic and political policy, political or civil unrest, acts of terrorism or the threat of international boycotts or U.S. anti-boycott legislation;
•exposure to increased taxation, confiscation or expropriation and the risk of forced nationalization;
•currency transfer restrictions and limitations on our ability to distribute cash earned in foreign jurisdictions to the United States;
•difficulty in enforcing agreements in non-U.S. jurisdictions, including those entered into in connection with our acquisitions or in the event of a default by one or more of our customers, suppliers or contractors;
•compliance with anti-bribery and corruption laws;
•local business and cultural factors;
•political and economic instability, including sovereign credit risk, in certain geographic regions; and
•difficulties in complying with U.S. rules governing REITs while operating outside of the United States.
In addition, the GDPR, which took effect in 2018, imposes detailed privacy requirements and increases the likelihood of applicability of European law to entities like us, which are established outside the EU but may process data of European data subjects. Among other requirements, the GDPR prohibits the transfer of personal information to countries outside of the European Economic Area ("EEA") that are not considered by the European Commission to provide an adequate level of data protection, such as the U.S., unless there is a suitable data transfer solution in place to safeguard personal data. On July 16, 2020, the Court of Justice of the European Union (CJEU) invalidated the European Commission’s adequacy decision that allowed companies to self-certify under the EU-U.S. Privacy Shield. As a result, organizations such as QTS that self-certified under the EU-U.S. Privacy Shield are no longer able to use this framework to transfer personal data, and thus must use alternative transfer mechanisms, which are facing or may face similar legal challenges in the EU. To the extent we are not in compliance with the GDPR, the EU authorities may investigate or bring enforcement actions against us that may result in criminal and administrative sanctions. Such actions could have a material adverse effect on us and harm our reputation.
Our inability to overcome these risks could adversely affect our foreign operations and growth prospects and could have a material adverse effect on us.
Government regulation could have a material adverse effect on us.
Various laws and governmental regulations, both in the U.S. and abroad, governing internet related services, related communications services and information technologies remain largely unsettled, even in areas where there has been some legislative action. We remain focused on whether and how existing and changing laws, such as those governing cybersecurity, data privacy and data security, intellectual property, libel, telecommunications services, consumer protection and taxation, apply to the internet and to related offerings such as ours, and substantial resources may be required to comply with regulations or bring any non-compliant business practices into compliance with such regulations.
In addition, the regulatory framework around data custody, data privacy and breaches varies by jurisdiction and is an evolving area of law with increasingly complex and rigorous regulatory standards enacted to protect business and personal data in the U.S. and elsewhere. We may not be able to limit our liability or damages in the event of such a loss. Data protection legislation is becoming increasingly common in the United States at both the federal and state level and may require us to further modify our data processing practices and policies. Compliance with existing and proposed laws and regulations can be costly; any failure to comply with these regulatory standards could subject us to legal and reputational risks. Misuse of or failure to secure personal information could also result in violation of data privacy laws and regulations, proceedings against us by governmental entities or others, fines and penalties, damage to our reputation and credibility and could have a negative impact on our business and results of operations.
We may co-invest in joint ventures with third parties from time to time, and such investments could be adversely affected by the capital markets, lack of sole decision-making authority, reliance on joint venture partners’ financial condition and any disputes that may arise between us and our joint venture partners.
We currently own one property, our Manassas (DC-1) data center, through a 50% joint venture with Alinda Capital Partners (“Alinda”). Under the joint venture agreement, we serve as the entity’s operating member, subject to authority and oversight of a board appointed by us and Alinda, and separately we serve as manager and developer of the facility in exchange for management and development fees. In addition, we have agreed to provide Alinda an opportunity to invest in future similar joint ventures based on similar terms and a comparable capitalization rate. See “Management’s Discussion and Analysis of
Financial Condition and Results of Operations-Factors That May Influence Future Results of Operations and Cash Flows-Unconsolidated Entity.”
In addition to this agreement, we may in the future co-invest with third parties through partnerships, joint ventures or other structures in which we acquire noncontrolling interests in, or share responsibility for, managing the affairs of a property, partnership, co-tenancy or other entity. Even if we have general management authority over joint ventures, we expect that our joint venture partners would have customary approval rights over certain major decisions. We may not be in a position to exercise sole decision-making authority regarding any properties owned through joint ventures or similar ownership structures. In addition, investments in joint ventures may, under certain circumstances, involve risks not present when a third party is not involved, including potential deadlocks in making major decisions, restrictions on our ability to exit the joint venture, reliance on joint venture partners and the possibility that a joint venture partner might become bankrupt or fail to fund its share of required capital contributions, thus exposing us to liabilities in excess of our share of the joint venture. Furthermore, our joint venture partners may take actions that are not within our control that could jeopardize our REIT status. The funding of our capital contributions to such joint ventures may be dependent on proceeds from asset sales, credit facility advances or sales of equity securities. Joint venture partners may have business interests or goals that are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives. We may, in specific circumstances, be liable for the actions of our joint venture partners. In addition, any disputes that may arise between us and joint venture partners may result in litigation or arbitration that would increase our expenses. Any of the foregoing may have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Financing
An inability to access external sources of capital on favorable terms or at all could limit our ability to execute our business and growth strategies.
In order to qualify and maintain our qualification as a REIT and eliminate our federal income tax liability, we distribute at least 90% of our “REIT taxable income.” Because of these distribution requirements, we may not be able to fund future capital needs, including capital for development projects and acquisition opportunities, from operating cash flow. Consequently, we intend to rely on third-party sources of capital to fund a substantial amount of our future capital needs. We may not be able to obtain such financing on favorable terms or at all. Any additional debt we incur will increase our leverage, expose us to the risk of default and impose operating restrictions on us. In addition, any equity financing could be materially dilutive to the equity interests held by our stockholders. Our access to third-party sources of capital depends, in part, on general market conditions, the market’s perception of our growth potential, our leverage, our current and expected results of operations, liquidity, financial condition and cash distributions to stockholders and the market price of our common stock. If we cannot obtain capital when needed, we may not be able to execute our business and growth strategies (including redeveloping or acquiring properties when strategic opportunities exist), satisfy our debt service obligations, make the cash distributions to our stockholders necessary to qualify and maintain our qualification as a REIT (which would expose us to corporate and/or income tax), or fund our other business needs, which could have a material adverse effect on us.
Our indebtedness outstanding as of December 31, 2020 was approximately $1,884.1 million, which exposes us to interest rate fluctuations and the risk of default thereunder, among other risks.
Our net indebtedness outstanding as of December 31, 2020 was approximately $1,884.1 million. Approximately $642.3 million of this indebtedness bears interest at a variable rate after taking into account $700 million of swaps which effectively convert our floating rate debt into fixed rate debt. Increases in interest rates, or the loss of the benefits of our existing or future hedging agreements, would increase our interest expense, which would adversely affect our cash flow and our ability to service our debt. Our organizational documents contain no limitations regarding the maximum level of indebtedness, as a percentage of our market capitalization or otherwise, that we may incur. We may incur significant additional indebtedness, including mortgage indebtedness, in the future. Our substantial outstanding indebtedness, and the limitations imposed on us by our debt agreements, could have other significant adverse consequences, including the following:
•our cash flow may be insufficient to meet our required principal and interest payments;
•we may use a substantial portion of our cash flows to make principal and interest payments and we may be unable to obtain additional financing as needed or on favorable terms, which could, among other things, have a material adverse effect on our ability to complete our development and redevelopment pipeline, capitalize upon acquisition opportunities, fund working capital, make capital expenditures, make cash distributions to our stockholders, or meet our other business needs;
•we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness;
•we may be forced to dispose of one or more of our properties, possibly on unfavorable terms or in violation of certain covenants to which we may be subject;
•we may be required to maintain certain debt and coverage and other financial ratios at specified levels, thereby reducing our financial flexibility;
•our vulnerability to general adverse economic and industry conditions may be increased;
•greater exposure to increases in interest rates for our variable rate debt and to higher interest expense on future fixed rate debt;
•we may be at a competitive disadvantage relative to our competitors that have less indebtedness;
•our flexibility in planning for, or reacting to, changes in our business and the markets in which we operate may be limited; and
•we may default on our indebtedness by failure to make required payments or violation of covenants, which would entitle holders of such indebtedness and possibly other indebtedness to accelerate the maturity of their indebtedness and, if such indebtedness is secured, to foreclose on our properties that secure their loans and receive an assignment of our rents and leases.
The occurrence of any one of these events could have a material adverse effect on us.
The agreements governing our existing indebtedness contain various covenants and other provisions which limit management’s discretion in the operation of our business, reduce our operational flexibility and create default risks.
The agreements governing our existing indebtedness contain, and agreements governing our future indebtedness may contain, covenants and other provisions that impose significant restrictions on us and our subsidiaries. These covenants restrict, among other things, our and our subsidiaries’ ability to:
•incur or guarantee additional indebtedness;
•pay dividends and make certain investments and other restricted payments;
•incur restrictions on the payment of dividends or other distributions from subsidiaries of the Operating Partnership;
•create or incur certain liens;
•transfer or sell certain assets;
•engage in certain transactions with affiliates; and
•merge or consolidate with other companies or transfer or sell all or substantially all of our assets.
Each of our significant debt instruments also requires that we maintain certain financial ratios. If we do not continue to satisfy these ratios or tests, we will be in default under the applicable debt instrument, which in turn may trigger defaults under our other debt instruments, which could result in the maturities of all of our debt obligations being accelerated. These events would have a material adverse effect on our liquidity.
Our unsecured credit facilities and the indenture governing our 3.875% Senior Notes due 2028 (the “3.875% Senior Notes”) also contain provisions that may limit QTS’ ability to make distributions to its stockholders and the Operating Partnership’s ability to make distributions to QTS.
These covenants could impair our ability to grow our business, take advantage of attractive business opportunities or successfully compete. In addition, failure to meet the covenants may result in an event of default under the applicable indebtedness, which could result in the acceleration of the applicable indebtedness and potentially other indebtedness, which could have a material adverse effect on us.
Any hedging transactions involve costs and expose us to potential losses.
Hedging agreements enable us to convert floating rate liabilities to fixed rate liabilities or fixed rate liabilities to floating rate liabilities. Hedging transactions expose us to certain risks, including that losses on a hedge position may reduce the cash available for distribution to stockholders and such losses may exceed the amount invested in such instruments and that counterparties to such agreements could default on their obligations, which could increase our exposure to fluctuating interest rates.
In addition, we use interest rate swaps to hedge our exposure to interest rate fluctuations. For example, as of December 31, 2020, we had interest rate swap agreements in place with an aggregate notional amount of $700 million. The forward swap agreements effectively fix the interest rate on $700 million of term loan borrowings, $225 million of swaps allocated to Term Loan A, $225 million allocated to Term Loan B and $250 million allocated to Term Loan C, through the current maturity dates of the respective term loans. We may use interest rate swaps or other forms of hedging again in the future.
The REIT rules impose certain restrictions on our ability to utilize hedges, swaps and other types of derivatives to hedge our liabilities. We may use hedging instruments in our risk management strategy to limit the effects of changes in interest rates on our operations. However, future hedges may be ineffective in eliminating all of the risks inherent in any particular position due to the fact that, among other things, the duration of the hedge may not match the duration of the related liability, the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction and the hedging counterparty owing money in the hedging transaction may default on its obligation to pay. The use of derivatives could have a material adverse effect on us.
We may be adversely affected by changes in LIBOR reporting practices, the method in which LIBOR is determined or the use of alternative reference rates.
As of December 31, 2020, we had approximately $1.3 billion of debt outstanding that was indexed to the London Interbank Offered Rate (“LIBOR”). On November 30, 2020, the ICE Benchmark Administration (“IBA”) announced that it intends to publish one week and two month USD-LIBOR settings until December 31, 2021, and the remaining USD-LIBOR settings until the end of June 2023. The IBA announcement was supported by similar announcements from the United Kingdom’s Financial Conduct Authority (“FCA”), which regulates LIBOR, and the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency (collectively, the “ U.S. Regulators”). Both the FCA and the U.S. Regulators in their announcements also encouraged banks to cease entering into new contracts referencing USD-LIBOR after December 2021. These announcements indicate that the continuation of LIBOR on the current basis may not be assured after 2021. In April 2018, the New York Federal Reserve commenced publishing an alternative reference rate to LIBOR as calculated for the U.S. dollar (“USD-LIBOR”), the Secured Overnight Financing Rate (“SOFR”). Though an alternative reference rate for USD-LIBOR, SOFR, exists, significant uncertainties still remain. We can provide no assurance regarding the future of LIBOR and when our LIBOR-based instruments will transition from USD-LIBOR as a reference rate to SOFR or another reference rate. The discontinuation of a benchmark rate or other financial metric, changes in a benchmark rate or other financial metric, or changes in market perceptions of the acceptability of a benchmark rate or other financial metric, including LIBOR, could, among other things result in increased interest payments, changes to our risk exposures, or require renegotiation of previous transactions. In addition, any such discontinuation or changes, whether actual or anticipated, could result in market volatility, adverse tax or accounting effects, increased compliance, legal and operational costs, and risks associated with contract negotiations. Additional risks may arise in connection with transitioning contracts to a new alternative rate, such as SOFR, including any resulting value transfer that may occur and changes in how we monitor our market risk exposures through sensitivity analysis.
Risks Related to the Real Estate Industry
The operating performance and value of our properties are subject to risks associated with the real estate industry.
As a real estate company, we are subject to all of the risks associated with owning and operating real estate, including:
•adverse changes in international, national or local economic and demographic conditions;
•vacancies or our inability to rent space on favorable terms, including possible market pressures to offer customers rent abatements, customer improvements, early termination rights or below-market renewal options;
•adverse changes in the financial condition or liquidity of buyers, sellers and customers (including their ability to pay rent to us) of properties, including data centers;
•the attractiveness of our properties to customers;
•competition from other real estate investors with significant resources and access to capital, including other real estate operating companies, publicly traded REITs and institutional investment funds;
•reductions in the level of demand for data center space;
•increases in the supply of data center space;
•fluctuations in interest rates, which could have a material adverse effect on our ability, or the ability of buyers and customers of properties, including data centers, to obtain financing on favorable terms or at all;
•increases in expenses that are not paid for by, or cannot be passed on to, our customers, such as the cost of complying with laws, regulations and governmental policies;
•the relative illiquidity of real estate investments, especially the specialized real estate properties that we hold and seek to acquire and develop;
•changes in, and changes in enforcement of, laws, regulations and governmental policies, including, without limitation, health, safety, environmental, zoning and tax laws, and governmental fiscal policies;
•property restrictions and/or operational requirements pursuant to restrictive covenants, reciprocal easement agreements, operating agreements or historical landmark designations; and
•civil unrest, acts of war, terrorist attacks and natural disasters, including earthquakes, tornados, hurricanes and floods, which may result in uninsured and underinsured losses.
In addition, periods of economic slowdown or recession, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in occupancy and rental sales, and therefore revenues, or an increased incidence of defaults under existing leases. Accordingly, we cannot assure you that we will be able to execute our business and growth strategies. Any inability to operate our properties to meet our financial, operational and strategic expectations could have a material adverse effect on us.
The illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in economic, financial, investment and other conditions.
Because real estate investments are relatively illiquid, our ability to promptly sell one or more properties in our portfolio in response to changing economic, financial, investment or other conditions is limited. The real estate market is affected by many factors that are beyond our control, including those described above. In particular, data centers represent a particularly illiquid part of the overall real estate market. This illiquidity is driven by a number of factors, including the relatively small number of potential purchasers of such data centers-including other data center operators and large corporate users-and the relatively high cost per square foot to develop data centers, which substantially limits a potential buyer’s ability to purchase a data center property with the intention of redeveloping it for an alternative use, such as an office building, or may substantially reduce the price buyers are willing to pay. Our inability to dispose of properties at opportune times or on favorable terms could have a material adverse effect on us.
In addition, the Code imposes restrictions on a REIT’s ability to dispose of properties that are not applicable to other types of real estate companies. In particular, the tax laws applicable to REITs require that we hold our properties for investment, rather than primarily for sale in the ordinary course of business, which may cause us to forego or defer sales of properties that otherwise would be in our best interest. Therefore, we may not be able to vary our portfolio in response to economic, financial, investment or other conditions promptly or on favorable terms, which could have a material adverse effect on us.
Declining real estate valuations could result in impairment charges, the determination of which involves a significant amount of judgment on our part. Any impairment charge could have a material adverse effect on us.
We review our properties for impairment on a quarterly and annual basis and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, and in the fourth quarter of 2019 we recognized an impairment charge of $11.5 million related to a write-down of certain data center assets and equipment in one of our Dulles, Virginia data centers. Indicators of impairment include, but are not limited to, a sustained significant decrease in the market price of or the cash flows expected to be derived from a property. A significant amount of judgment is involved in determining the presence of an indicator of impairment. If the total of the expected undiscounted future cash flows is less than the carrying amount of a property on our balance sheet, a loss is recognized for the difference between the fair value and carrying value of the property. The evaluation of anticipated cash flows requires a significant amount of judgment regarding assumptions that could differ materially from actual results in future periods, including assumptions regarding future occupancy, rental rates and capital requirements. Any impairment charge could have a material adverse effect on us.
Increased tax rates and reassessments could significantly increase our property taxes and have a material adverse effect on us.
Our properties are subject to real and personal property taxes. These taxes may increase as tax rates change and as the properties are assessed or reassessed by taxing authorities. It is likely that the properties will be reassessed by taxing authorities as a result of (i) the acquisition of the properties by us and (ii) the informational returns that we must file. Some of our customer contracts do not contain provisions requiring our customers to pay their proportionate share of those taxes. Any increase in property taxes on the properties could have a material adverse effect on us.
If California changes its property tax scheme, our California properties could be subject to significantly higher tax levies.
Owners of California property are subject to particularly high property taxes. Voters in the State of California previously passed Proposition 13, which generally limits annual real estate tax increases to 2% of assessed value per annum. From time to time, various groups have proposed repealing Proposition 13, or providing for modifications such as a “split roll tax,” whereby commercial property, for example, would be taxed at a higher rate than residential property. Given the uncertainty, it is not possible to quantify the risk to us of a tax increase or the resulting impact on us of any increase, but any tax increase could be significant at our California properties.
Uninsured and underinsured losses could have a material adverse effect on us.
We carry comprehensive liability, fire, extended coverage, earthquake, business interruption and rental loss insurance with respect to our properties, as well as cybersecurity insurance, and we plan to obtain similar coverage for properties we acquire in the future. However, certain types of losses, generally of a catastrophic nature, such as earthquakes and floods, may be either uninsurable or not economically insurable. Should a property sustain damage, we may incur losses due to insurance deductibles, to co-payments on insured losses or to uninsured losses. In the event of a substantial property loss, the insurance coverage may not be sufficient to pay the full current market value or current replacement cost of the property. Inflation, changes in building codes and ordinances, environmental considerations, and other factors also might make it infeasible to use insurance proceeds to replace a property after it has been damaged or destroyed. Under such circumstances, the insurance proceeds we receive might not be adequate to restore our economic position with respect to such property. Lenders may require such insurance and our failure to obtain such insurance may constitute default under loan agreements, which could have a material adverse effect on us. Finally, a disruption in the financial markets may make it more difficult to evaluate the stability, net assets and capitalization of insurance companies and any insurer’s ability to meet its claim payment obligations. A failure of an insurance company to make payments to us upon an event of loss covered by an insurance policy could have a material adverse effect on us. In the event of an uninsured or partially insured loss, we could lose some or all of our capital investment, cash flow and revenues related to one or more properties, which could also have a material adverse effect on us.
As the current or former owner or operator of real property, we could become subject to liability for environmental contamination, regardless of whether we caused such contamination, which could have a material adverse effect on us.
Under various federal, state and local statutes, regulations and ordinances relating to the protection of the environment, a current or former owner or operator of real property may be liable for the cost to remove or remediate contamination resulting from the presence or discharge of hazardous substances, wastes or petroleum products on, under, from or in such property. These costs could be substantial, liability under these laws may attach without regard to whether the owner or operator knew of, or was responsible for, the presence of the contaminants, and the liability may be joint and several. Most of our properties presently contain large underground or above ground fuel storage tanks used to fuel generators for emergency power, which is critical to our operations. If any of the tanks that we own or operate releases fuel to the environment, we would likely have to pay to clean up the contamination. In addition, prior owners and operators used some of our current properties for industrial and commercial purposes, which could have resulted in environmental contamination, including our Irving and Richmond data center properties, which were previously used as semiconductor plants. Moreover, the presence of contamination or the failure to remediate contamination at our properties may (1) expose us to third-party liability (e.g., for cleanup costs, bodily injury or property damage), (2) subject our properties to liens in favor of the government for damages and costs the government incurs in connection with the contamination, (3) impose restrictions on the manner in which a property may be used or businesses may be operated, or (4) materially adversely affect our ability to sell, lease or develop the real estate or to borrow using the real estate as collateral. In addition, there may be material environmental liabilities at our properties of which we are not aware. We also may be liable for the costs of remediating contamination at off-site facilities at which we have arranged, or will arrange, for disposal or treatment of our hazardous substances without regard to whether we
complied or will comply with environmental laws in doing so. Any of these matters could have a material adverse effect on us.
We could become subject to liability for failure to comply with environmental, health and safety requirements or zoning laws, which could cause us to incur additional expenses.
Our properties are subject to federal, state and local environmental, health and safety laws and regulations and zoning requirements, including those regarding the handling of regulated substances and wastes, emissions to the environment and fire codes. For instance, our properties are subject to regulations regarding the storage of petroleum for auxiliary or emergency power and air emissions arising from the use of power generators. In particular, generators at our data center facilities are subject to strict emissions limitations, which could preclude us from using critical back-up systems and lead to significant business disruptions at such facilities and loss of our reputation. If we exceed these emissions limits, we may be exposed to fines and/or other penalties. In addition, we lease some of our properties to our customers who also are subject to such environmental, health and safety laws and zoning requirements. In addition, our properties are subject to the ADA, which may require modifications to our properties, or restrict our ability to renovate our properties. If we, or our customers, fail to comply with these various laws and requirements, we might incur costs and liabilities, including governmental fines and penalties. Moreover, we do not know whether existing laws and requirements will change or, if they do, whether future laws and requirements will require us to make significant unanticipated expenditures that could have a material adverse effect on us. Environmental noncompliance liability also could affect a customer’s ability to make rental payments to us.
Our properties may contain or develop harmful mold or suffer from other adverse conditions, such as asbestos, which could lead to liability for adverse health effects and costs of remediation.
When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues also can stem from inadequate ventilation, chemical contamination from indoor or outdoor sources and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our customers, employees of our customers and others if property damage or personal injury occurs.
Additionally, some of our properties may contain, or may have contained, asbestos-containing building materials, which may subject us to additional costs to comply with laws relating to the management and removal of these materials, or fines if we fail to comply with such laws.
Thus, conditions related to mold or other airborne contaminants as well as becoming subject to penalties or other liabilities as a result of ACM at one or more of our properties, could have a material adverse effect on us.
Laws, regulations or other issues related to climate change could have a material adverse effect on us.
If we, or other companies with which we do business, particularly utilities that provide our facilities with electricity, become subject to laws or regulations related to climate change, it could have a material adverse effect on us. The United States may enact new laws, regulations and interpretations relating to climate change, including potential cap-and-trade systems, carbon taxes and other requirements relating to reduction of carbon footprints and/or greenhouse gas emissions. Other countries have enacted climate change laws and regulations and the United States has been involved in discussions regarding international climate change treaties. The federal government and some of the states and localities in which we operate have enacted certain climate change laws and regulations and/or have begun regulating carbon footprints and greenhouse gas emissions. Although these laws and regulations have not had any known material adverse effect on us to date, they could limit our ability to develop new facilities or result in substantial costs, including compliance costs, retrofit costs and construction costs, monitoring and reporting costs and capital expenditures for environmental control facilities and other new equipment. In addition, these laws and regulations could lead to increased costs for the electricity that we require to conduct our operations. Furthermore, our reputation could be damaged if we violate climate change laws or regulations. We cannot predict how future laws and regulations, or future interpretations of current laws and regulations, related to climate change will affect our business, results of operations, liquidity and financial condition. Lastly, the potential physical impacts of climate change on
our operations are highly uncertain, and would be particular to the geographic circumstances in areas in which we operate. These may include changes in rainfall and storm patterns and intensities, water shortages, which may result in water use restrictions and water efficiency mandates, changing sea levels and changing temperatures. Any of these matters could have a material adverse effect on us.
Risks Related to Our Organizational Structure
As of December 31, 2020, Chad L. Williams, our Chairman and Chief Executive Officer, owned approximately 9.1% of QTS’ outstanding common stock on a fully diluted basis and has the ability to exercise significant influence on the company and any matter presented to its stockholders.
As of December 31, 2020, Chad L. Williams, our Chairman, President and Chief Executive Officer owned approximately 9.1% of QTS’ outstanding common stock on a fully diluted basis. Mr. Williams has a significant vote in matters submitted to a vote of stockholders as a result of his ownership of Class B common stock, which gives him voting power equal to his economic interest in QTS as if he had exchanged all of his units of limited partnership interest (Operating Partnership units or "OP units"), for shares of Class A common stock, including in the election of directors. No other stockholder is permitted to own more than 7.5% of the aggregate of the outstanding shares of its common stock, except for certain designated investment entities that may own up to 9.8% of the aggregate of the outstanding shares of its common stock, subject to certain conditions, and except as approved by the board of directors pursuant to the terms of QTS’ charter. Consequently, Mr. Williams may be able to significantly influence the outcome of matters submitted for stockholder action, including the election of the board of directors and approval of significant corporate transactions, such as business combinations, consolidations and mergers, as well as the determination of its day-to-day business decisions and management policies. As a result, Mr. Williams could exercise his influence on QTS in a manner that conflicts with the interests of other stockholders. Mr. Williams may have interests that differ from other stockholders, including by reason of his remaining interest in the Operating Partnership, and may accordingly vote in ways that may not be consistent with the interests of holders of Class A common stock. Moreover, if Mr. Williams were to sell, or otherwise transfer, all or a large percentage of his holdings, the market price of QTS’ common stock could decline and QTS could find it difficult to raise the capital necessary for it to execute its business and growth strategies.
The tax protection agreement, during its term, could limit our ability to sell or otherwise dispose of certain properties and may require the Operating Partnership to maintain certain debt levels and agree to certain terms with lenders that otherwise would not be required to operate our business.
In connection with the IPO, we entered into a tax protection agreement with Chad L. Williams, our Chairman and Chief Executive Officer, and his affiliates and family members who own OP units that provides that if (1) we sell, exchange, transfer, convey or otherwise dispose of our Atlanta (DC-1), Atlanta-Suwanee or Santa Clara data centers in a taxable transaction prior to January 1, 2026, referred to as the protected period, (2) cause or permit any transaction that results in the disposition by Mr. Williams or his affiliates and family members who own OP units of all or any portion of their interests in the Operating Partnership in a taxable transaction during the protected period or (3) fail prior to the expiration of the protected period to maintain approximately $175 million of indebtedness that would be allocable to Mr. Williams and his affiliates for tax purposes or, alternatively, fail to offer Mr. Williams and his affiliates and family members who own OP units the opportunity to guarantee specific types of the Operating Partnership’s indebtedness in order to enable them to continue to defer certain tax liabilities, we will indemnify Mr. Williams and his affiliates and family members who own OP units against certain resulting tax liabilities. Therefore, although it may be in our stockholders’ best interests that we sell, transfer, convey or otherwise dispose of one of these properties, it may be economically prohibitive for us to do so during the protected period because of these indemnity obligations. Moreover, these obligations may require us to maintain more or different indebtedness or agree to terms with our lenders that we would not otherwise agree to. As a result, the tax protection agreement will, during its term, restrict our ability to take actions or make decisions that otherwise would be in our best interests. As of December 31, 2020, our Atlanta (DC-1), Atlanta-Suwanee and Santa Clara data centers represented approximately 44% of our annualized rent.
QTS’ charter and Maryland law contain provisions that may delay, defer or prevent a change in control of our company, even if such a change in control may be in your interest, and as a result may depress our common stock price.
The stock ownership limits imposed by the Code for REITs and imposed by QTS’ charter may restrict our business combination opportunities that might involve a premium price for shares of our common stock or otherwise be in the best interest of our stockholders.
In order for QTS to maintain its qualification as a REIT under the Code, not more than 50% in value of our outstanding stock may be owned, directly or indirectly, by five or fewer individuals (defined in the Code to include certain entities) at any time during the last half of each taxable year. QTS’ charter, with certain exceptions, authorizes our board of directors to take the actions that are necessary and desirable to preserve our qualification as a REIT. Unless exempted by our board of directors, no person may actually or constructively own more than 7.5% of the aggregate of the outstanding shares of our common stock by value or by number of shares, whichever is more restrictive, or 7.5% of the aggregate of the outstanding shares of our preferred stock by value or by number of shares, whichever is more restrictive, subject to exceptions for certain designated investment entities and Chad L. Williams, his family members and entities owned by or for the benefit of them.
Our board of directors may, in its sole discretion, grant other exemptions to the stock ownership limits, subject to such conditions and the receipt by our board of directors of certain representations and undertakings.
In addition to these ownership limits, our charter also prohibits any person from (a) beneficially or constructively owning, as determined by applying certain attribution rules of the Code, our stock that would result in us being “closely held” under Section 856(h) of the Code or that would otherwise cause us to fail to qualify as a REIT, (b) transferring stock if such transfer would result in our stock being owned by fewer than 100 persons, (c) beneficially or constructively owning shares of our capital stock that would result in us owning (directly or indirectly) an interest in a tenant if the income derived by us from that tenant for our taxable year during which such determination is being made would reasonably be expected to equal or exceed the lesser of one percent of our gross income or an amount that would cause us to fail to satisfy any of the REIT gross income requirements and (d) beneficially or constructively owning shares of our capital stock that would cause us otherwise to fail to qualify as a REIT. The ownership limits imposed under the Code are based upon direct or indirect ownership by “individuals,” but only during the last half of a tax year. The ownership limits contained in our charter key off of the ownership at any time by any “person,” which term includes entities.
The ownership limits on our common stock also might delay, defer or prevent a transaction or a change in control of our company that might involve a premium price for shares of our common stock or otherwise be in the best interest of our stockholders.
Our authorized but unissued shares of common and preferred stock may prevent a change in control of our Company that might involve a premium price for shares of our common stock or otherwise be in the best interest of our stockholders.
QTS’ charter authorizes QTS to issue additional shares of common and preferred stock. In addition, our board of directors may, without stockholder approval, amend QTS’ charter to increase the aggregate number of shares of our common stock or the number of shares of stock of any class or series that we have authority to issue and classify or reclassify any unissued shares of common or preferred stock and set the preferences, rights and other terms of the classified or reclassified shares; provided that our board of directors may not amend QTS’ charter to increase the aggregate number of shares of Class B common stock that we have the authority to issue or reclassify any shares of our capital stock as Class B common stock without stockholder approval. In 2018, QTS issued 4,280,000 shares of 7.125% Series A Cumulative Redeemable Perpetual Preferred Stock (“Series A Preferred Stock”) and 3,162,500 shares of 6.50% Series B Cumulative Convertible Perpetual Preferred Stock (“Series B Preferred Stock”). As a result, the Series A Preferred Stock and Series B Preferred Stock, and the ability our board of directors to establish additional series of shares of common or preferred stock, could delay, defer or prevent a transaction or a change in control of our company that might involve a premium price for shares of our common stock or otherwise be in the best interest of our stockholders. In addition, our Series A Preferred Stock and Series B Preferred Stock rank, and any other Preferred Stock that we may issue would rank, senior to our common stock with respect to the payment of distributions and other amounts (including upon liquidation), in which case we could not pay any distributions on our common stock until full distributions have been paid with respect to such preferred stock.
Certain provisions of Maryland law could inhibit a change in control of our Company.
Certain provisions of the Maryland General Corporation Law (or MGCL) may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change in control under circumstances that otherwise could provide the holders of shares of our common stock with the opportunity to realize a premium over the then-prevailing market price of such shares, including:
•“business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of our then outstanding voting power of our shares or an affiliate or associate of ours who, at any time within the two-year
period prior to the date in question, was the beneficial owner of 10% or more of our then outstanding voting shares) or an affiliate thereof for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter imposes special appraisal rights and special stockholder voting requirements on these combinations; and
•“control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
QTS has opted out of these provisions of the MGCL, in the case of the business combination provisions of the MGCL by resolution of its board of directors, and in the case of the control share provisions of the MGCL by a provision in its bylaws. However, our board of directors may by resolution elect to opt in to the business combination provisions of the MGCL and it may, by amendment to its bylaws (which such amendment could be adopted by its board of directors in its sole discretion), opt in to the control share provisions of the MGCL in the future.
Certain provisions in the partnership agreement of the Operating Partnership may delay, defer or prevent unsolicited acquisitions of us or changes in our control.
Provisions in the partnership agreement of the Operating Partnership may delay, defer or prevent unsolicited acquisitions of us or changes in our control. These provisions include, among others:
•redemption rights of qualifying parties;
•a requirement that we may not be removed as the general partner of the Operating Partnership without our consent;
•transfer restrictions on our OP units;
•our inability, as general partner, in some cases, to amend the partnership agreement without the consent of the limited partners; and
•the right of the limited partners to consent to transfers of the general partnership interest and mergers under specified circumstances.
These provisions could discourage third parties from making proposals involving an unsolicited acquisition of us or change of our control, although some stockholders might consider such proposals, if made, desirable.
QTS’ charter and bylaws, the partnership agreement of the Operating Partnership and Maryland law also contain other provisions that may delay, defer or prevent a transaction or a change in control of our company that might involve a premium price for our common stock or that our stockholders otherwise believe to be in their best interests.
Conflicts of interest exist or could arise in the future with holders of OP units, which may impede business decisions that could benefit our stockholders.
Conflicts of interest exist or could arise in the future as a result of the relationships between QTS and its affiliates, on the one hand, and the Operating Partnership or any partner thereof, on the other. Our directors and officers have duties to QTS and its stockholders under applicable Maryland law in connection with their management of our company. At the same time, we, as general partner, have fiduciary duties to the Operating Partnership and to its limited partners under Delaware law in connection with the management of the Operating Partnership. QTS’ duties as general partner to the Operating Partnership and its partners may come into conflict with the duties of our directors and officers to our company and our stockholders. These conflicts may be resolved in a manner that is not in the best interest of stockholders.
Additionally, the partnership agreement expressly limits our liability by providing that QTS and its officers, directors, agents and employees will not be liable or accountable to the Operating Partnership for losses sustained, liabilities incurred or benefits not derived if we or such officer, director, agent or employee acted in good faith. In addition, the Operating Partnership is required to indemnify QTS, and its officers, directors, agents, employees and designees to the extent permitted by applicable law from and against any and all claims arising from operations of the Operating Partnership, unless it is established that (1) the act or omission was committed in bad faith, was fraudulent or was the result of active and deliberate dishonesty, (2) the indemnified party received an improper personal benefit in money, property or services or (3) in the case
of a criminal proceeding, the indemnified person had reasonable cause to believe that the act or omission was unlawful. The provisions of Delaware law that allow the fiduciary duties of a general partner to be modified by a partnership agreement have not been resolved in a court of law, and we have not obtained an opinion of counsel covering the provisions set forth in the partnership agreement that purport to waive or restrict our fiduciary duties that would be in effect were it not for the partnership agreement.
Our rights and the rights of our stockholders to take action against our directors and officers are limited, which could limit our stockholders’ recourse in the event of actions not in our stockholders’ best interests.
Under Maryland law generally, a director is required to perform his or her duties in good faith, in a manner he or she reasonably believes to be in the best interests of our company and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Under Maryland law, directors are presumed to have acted with this standard of care. In addition, our charter limits the liability of our directors and officers to us and our stockholders for money damages, except for liability resulting from:
•actual receipt of an improper benefit or profit in money, property or services; or
•active and deliberate dishonesty by the director or officer that was established by a final judgment as being material to the cause of action adjudicated.
QTS’ charter obligates QTS to indemnify its directors and officers for actions taken by them in those capacities to the maximum extent permitted by Maryland law. QTS’ bylaws require it to indemnify each director or officer, to the maximum extent permitted by Maryland law, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service to us. In addition, QTS may be obligated to advance the defense costs incurred by its directors and officers. As a result, QTS and its stockholders may have more limited rights against its directors and officers than might otherwise exist absent the current provisions in QTS’ charter and bylaws or that might exist with other companies.
Risks Related to our Class A Common Stock
Our cash available for distribution to stockholders may not be sufficient to pay distributions at expected or REIT-required levels, or at all, and we may need to borrow or rely on other third-party capital in order to make such distributions, as to which no assurance can be given, which could cause the market price of our common stock to decline significantly.
We intend to continue to pay regular quarterly distributions to our stockholders. However, no assurance can be given that our estimated cash available for distribution to our stockholders will be accurate or that our actual cash available for distribution to our stockholders will be sufficient to pay distributions to them at any expected or REIT-required level or at any particular yield, or at all. Accordingly, we may need to borrow or rely on other third-party capital to make distributions to our stockholders, and such third-party capital may not be available to us on favorable terms or at all. As a result, we may not be able to pay distributions to our stockholders in the future. Our failure to pay any such distributions or to pay distributions that fail to meet our stockholders’ expectations from time to time or the distribution requirements for a REIT could cause the market price of our common stock to decline significantly. All distributions will be made at the discretion of our board of directors and will depend on our historical and projected results of operations, liquidity and financial condition, our REIT qualification, our debt service requirements, operating expenses and capital expenditures, prohibitions and other restrictions under financing arrangements and applicable law and other factors as our board of directors may deem relevant from time to time. In addition, we may pay distributions some or all of which may constitute a return of capital. To the extent that we decide to make distributions in excess of our current and accumulated earnings and profits, such distributions would generally be considered a return of capital for U.S. federal income tax purposes to the extent of the holder’s adjusted tax basis in its shares. A return of capital is not taxable, but it has the effect of reducing the holder’s adjusted tax basis in its investment. To the extent that distributions exceed the adjusted tax basis of a holder’s shares, they will be treated as gain from the sale or exchange of such shares. If we borrow to fund distributions, our future interest costs would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have been.
Future issuances or sales of our common stock, or the perception of the possibility of such issuances or sales, may depress the market price of our common stock.
We cannot predict the effect, if any, of our future issuances or sales of our common stock or OP units, or future resales of our common stock or OP units by existing holders, or the perception of such issuances, sales or resales, on the market price of our common stock. Any such future issuances, sales or resales, or the perception that such issuances, sales or resales might occur,
could depress the market price of our common stock and also may make it more difficult and costly for us to sell equity or equity-related securities in the future at a time and upon terms that we deem desirable.
As of December 31, 2020, we had 64,453,752 shares of our Class A common stock outstanding and 9,961,497 shares of our Class A common stock sold on a forward basis which are not yet outstanding. In addition, as of December 31, 2020, we had 126,366 shares of our Class B common stock and 6,557,699 OP units outstanding (each of which may, and in certain cases must, exchange into shares of Class A common stock on a one-for-one basis). In addition, as of December 31, 2020, we had 3,162,500 shares of Series B Preferred Stock, which are convertible into shares of Class A common stock at any time at the option of the holder. Subject to applicable law, our board of directors has the authority, without further stockholder approval, to issue additional shares of common stock and preferred stock on the terms and for the consideration it deems appropriate.
In addition to the restricted stock that we previously have granted to our directors, executive officers and other employees under our equity incentive plan, we may also issue additional shares of our common stock and securities convertible into, or exchangeable or exercisable for, our common stock under our equity incentive plan. We have filed with the SEC a registration statement on Form S-8 covering the common stock issuable under our equity incentive plan. Shares of our common stock covered by such registration statement are eligible for transfer or resale without restriction under the Securities Act, unless held by affiliates. We also may issue from time to time additional shares of our common stock or OP units in connection with acquisitions and may grant registration rights in connection with such issuances pursuant to which we would agree to register the resale of such securities under the Securities Act. In addition, we have granted registration rights to Chad L. Williams, our Chairman and Chief Executive Officer, and others with respect to shares of common stock owned by them or upon redemption of OP units held by them. The market price of our common stock may decline significantly upon the registration of additional shares of our common stock pursuant to these registration rights or future issuances of equity in connection with acquisitions or our equity incentive plan.
Future issuances of debt securities, which would rank senior to our common stock upon our liquidation, and future issuances of equity securities (including OP units), which would dilute the holdings of our existing common stockholders and may be senior to our common stock for the purposes of making distributions, periodically or upon liquidation, may negatively affect the market price of our common stock.
In the future, we may issue debt or equity securities or incur other borrowings. Upon our liquidation, holders of our debt securities and other loans and preferred stock will receive a distribution of our available assets before common stockholders. If we incur debt in the future, our future interest costs could increase and adversely affect our results of operations and liquidity.
We are not required to offer any additional equity securities to existing common stockholders on a preemptive basis. Therefore, additional common stock issuances, directly or through convertible or exchangeable securities (including OP units), warrants or options, will dilute the holdings of our existing common stockholders and such issuances, or the perception of such issuances, may reduce the market price of our common stock. Our Series A Preferred Stock and our Series B Preferred Stock has a preference on distribution payments, periodically or upon liquidation, which could eliminate or otherwise limit our ability to make distributions to common stockholders. In addition, our Series B Preferred Stock is convertible, at any time, at the option of the holder thereof, into shares of our Class A common stock per share of Series B Preferred Stock, subject to certain adjustments including adjustments on a fundamental change transaction. As a result, the issuance of additional shares of our Class A common stock upon conversion of the Series B Preferred Stock will dilute the ownership interest of our Class A common stockholders and could have a dilutive effect on earnings per share of our Class A common stock and funds from operations per share of our Class A common stock. Because our decision to issue debt or equity securities or incur other borrowings in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, nature or success of our future capital-raising efforts. Thus, common stockholders bear the risk that our future issuances of debt or equity securities or our incurrence of other borrowings will negatively affect the market price of our common stock.
The trading volume and market price of our common stock may be volatile and could decline significantly in the future.
The market price of our common stock may be volatile. The stock markets, including the NYSE, on which our common stock is listed, have experienced significant price and volume fluctuations. As a result, the market price of our common stock is likely to be similarly volatile, and could decline significantly, unrelated to our operating performance or prospects. The market price of our common stock could be subject to wide fluctuations in response to a number of factors, including those listed in this “Risk Factors” section of this Form 10-K and others such as:
•our operating performance and prospects and those of other similar companies;
•actual or anticipated variations in our financial condition, liquidity, results of operations, FFO, Operating FFO, Adjusted Operating FFO, NOI, EBITDAre or MRR in the amount of distributions, if any, paid to our stockholders;
•changes in our estimates or those of securities analysts relating to our earnings or other operating metrics;
•publication of research reports about us, our significant customers, our competition, data center companies generally, the real estate industry or the technology industry;
•additions or departures of key personnel;
•the passage of legislation or other regulatory developments that adversely affect us or our industry;
•changes in market valuations of similar companies;
•adverse market reaction to leverage we may incur or equity we may issue in the future;
•actions by institutional stockholders;
•actual or perceived accounting issues, including changes in accounting principles;
•compliance with NYSE requirements;
•our qualification as a REIT;
•terrorist acts;
•speculation in the press or investment community;
•the realization of any of the other risk factors presented in this Form 10-K;
•adverse developments in the creditworthiness, business or prospects of one or more of our significant customers; and
•general market, economic and political conditions.
In the past, securities class action litigation has often been instituted against companies following periods of volatility in the market price of their common stock. This type of litigation, if brought against us, could result in substantial costs and divert our management’s attention and resources, which could have a material adverse effect on us.
Increases in market interest rates may cause prospective purchasers to seek higher distribution yields and therefore reduce demand for our common stock and result in a decline in the market price of our common stock.
The price of our common stock may be influenced by our distribution yield (i.e., the amount of our annual or annualized distributions, if any, as a percentage of the market price of our common stock) relative to market interest rates. An increase in market interest rates, which are currently low relative to historical levels, may lead prospective purchasers and holders of our common stock to expect a higher distribution yield, which we may not be able, or may choose not, to satisfy. As a result, prospective purchasers may decide to purchase other securities rather than our common stock, which would reduce the demand for our common stock, and existing holders of our common stock may decide to sell their shares, either of which could result in a decline in the market price of our common stock.
Risks Related to QTS’ Status as a REIT
If QTS does not qualify as a REIT, or fails to remain qualified as a REIT, we will be subject to U.S. federal income tax as a regular corporation and could face significant tax liability, which could reduce the amount of cash available for distribution to our stockholders, could have a material adverse effect on QTS, and could adversely affect the Operating Partnership’s ability to service its indebtedness.
QTS elected to be taxed as a REIT, commencing with our taxable year ended December 31, 2013, when we filed our U.S federal income tax return for that year. We believe that we have been organized and have operated and will continue to operate in conformity with the requirements for qualification and taxation as a REIT. QTS’ qualification as a REIT, and maintenance of such qualification, depends upon our ability to meet, on a continuing basis, various complex requirements under the Code relating to, among other things, the sources of its gross income, the composition and values of its assets, its distributions to its stockholders of at least 90% of its annual “REIT taxable income” (determined without regard to the dividends-paid deduction and excluding net capital gain) and the concentration of ownership of its equity shares. The complexity of these provisions and of the applicable U.S. Department of Treasury regulations (“Treasury Regulations”) that have been promulgated under the Code is greater in the case of a REIT that, like QTS, holds its assets through a partnership and conducts significant business operations through one or more taxable REIT subsidiaries (each a “TRS”). Even a technical or inadvertent mistake could jeopardize QTS’ REIT status. Accordingly, we cannot be certain that our organization and operation will enable QTS to qualify as a REIT for U.S. federal income tax purposes.
If QTS loses its REIT status, we will face serious tax consequences that could adversely affect our ability to raise capital and the Operating Partnership’s ability to service its indebtedness for each of the years involved because:
•we would not be allowed a deduction for distributions to stockholders in computing our taxable income and would be subject to U.S. federal income tax at regular corporate rates and, therefore, would have to pay significant income taxes; and
•unless we are entitled to relief under applicable statutory provisions, we could not elect to be taxed as a REIT for four taxable years following the year during which it was disqualified.
In addition, if QTS fails to qualify as a REIT, we will not be required to make distributions to stockholders.
Even if QTS qualifies as a REIT, we will be subject to some taxes that will reduce our cash flow.
Even if QTS qualifies for taxation as a REIT, we may be subject to certain U.S. federal, state, local and foreign taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes. For example, our TRSs and certain of our subsidiaries are subject to U.S. federal, state, local, and foreign corporate-level income taxes on their net taxable income, if any, which primarily consists of the revenues from the managed service business. In addition, QTS may incur a 100% excise tax on transactions with our TRSs if they are not conducted on an arm’s-length basis. See “The ownership limitation on TRS stock could limit the growth of the managed services business, and our transactions with our TRSs will cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on arm’s-length terms” below.
Moreover, if we have net income from the sale of properties that are "dealer" properties (a “prohibited transaction,” under the Code) that income will be subject to a 100% penalty tax. In addition, we could, in certain circumstances, be required to pay an excise or penalty tax (which could be significant in amount) in order to utilize one or more relief provisions under the Code to maintain our qualification as a REIT. Any of these taxes would reduce our cash flow and could decrease cash available for distribution to stockholders and decrease cash available to service the Operating Partnership’s indebtedness.
If the structural components of our properties were not treated as real property for purposes of the REIT qualification requirements, QTS could fail to qualify as a REIT, which could have a material adverse effect on us.
A significant portion of the value of our properties is attributable to structural components related to the provision of electricity, heating ventilation and air conditioning, humidification regulation, security and fire protection, and telecommunication services. If rent attributable to personal property leased in connection with a lease of real property is greater than 15% of the total rent attributable to that lease, the portion of total rent that is attributable to the personal property will not be qualifying income for purposes of the REIT income tests. Therefore, if the Operating Partnership’s structural components of the properties are determined not to constitute real property for purposes of the REIT qualification requirements, we could fail to qualify as a REIT, which could have a material adverse impact on us, depress the market price of our common stock, and adversely affect our ability to raise capital as well as the Operating Partnership’s ability to service its indebtedness.
The REIT distribution requirements could adversely affect our ability to grow our business and may force us to seek third-party capital during unfavorable market conditions.
To qualify as a REIT, we generally must distribute to our stockholders at least 90% of its “REIT taxable income” (determined without regard to the dividends paid deduction and excluding net capital gain) each year, and we will be subject to regular corporate income taxes to the extent that we distribute less than 100% of our “REIT taxable income” each year. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years. In order to maintain our REIT status and avoid the payment of income and excise taxes, we may be forced to seek third-party capital to meet the distribution requirements even if the then-prevailing market conditions are not favorable. These capital needs could result from differences in timing between the recognition of taxable income and the actual receipt of cash or the effect of non-deductible capital expenditures, the creation of reserves or required debt or amortization payments. If we do not have other funds available in these situations, the Operating Partnership could be required to borrow funds on unfavorable terms, or sell assets at disadvantageous prices. In addition, we may be forced to distribute amounts that would otherwise have been invested in future acquisitions to make distributions sufficient to enable us
to pay out enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends, which could depress the market price of our common stock if it is perceived as a less attractive investment.
The maximum tax rate applicable to income from "qualified dividends" payable by non-REIT “C” corporations to U.S. stockholders that are individuals, trusts and estates generally is 20% (excluding the 3.8% net investment income tax). Dividends payable by REITs, however, generally are not eligible for the current reduced rate, except to the extent that certain holding requirements have been met and a REIT's dividends are attributable to dividends received by a REIT from taxable corporations (such as a TRS), to income that was subject to tax at the REIT/corporate level, or to dividends properly designated by the REIT as "capital gains dividends." For taxable years beginning before January 1, 2026, U.S. stockholders may deduct 20% of their dividends from REITs (excluding qualified dividend income and capital gains dividends). For those U.S. stockholders in the top marginal tax bracket of 37%, the deduction for REIT dividends yields an effective income tax rate of 29.6% on REIT dividends, which is higher than the 20% tax rate on qualified dividend income paid by non-REIT “C” corporations. Although the reduced rates applicable to dividend income from non-REIT “C” corporations do not adversely affect the taxation of REITs or dividends payable by REITs, it could cause investors who are non-corporate taxpayers to perceive investments in REITs to be relatively less attractive than investments in the stock of non-REIT “C” corporations that pay dividends, which could depress the market price of the stock of REITs, including our common stock.
QTS may in the future choose to make distributions in the form of shares of common stock, in which case stockholders may be required to pay income taxes in excess of the cash dividends they receive.
To make required REIT distributions and preserve cash, we might elect to make taxable distributions that are payable partly in cash and partly in shares of our common stock. If we made a taxable dividend payable in cash and shares of our common stock, taxable stockholders receiving such distributions will be taxed on the full amount of the distribution that otherwise would be a dividend for tax purposes, even though part is paid in stock. If we made a taxable dividend payable in cash and our common stock and a significant number of stockholders determine to sell shares of our common stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our common stock.
Complying with REIT requirements may cause the Operating Partnership to liquidate or forgo otherwise attractive investment opportunities.
To qualify as a REIT, we must ensure that, at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and “real estate assets” (as defined in the Code), including certain mortgage loans and securities (the “75% asset test”). The remainder of our investments (other than securities includable in the 75% asset test, and securities issued by our TRSs) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our total assets (other than securities includable in the 75% asset test, and securities issued by our TRSs) can consist of the securities of any one issuer no more than 20% of the value of our total assets can be represented by securities of one or more TRS, and debt instruments issued by publicly offered REITs, to the extent not secured by real property or interests in real property, cannot exceed 25% of the value of our total assets. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, the Operating Partnership may be required to liquidate or forgo otherwise attractive investment opportunities. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders and the Operating Partnership’s income and amounts available to service its indebtedness.
In addition to the asset tests set forth above, to qualify as a REIT, we must continually satisfy tests concerning, among other things, the sources of our income, the amounts we distribute to our stockholders and the ownership of our stock. The Operating Partnership may be unable to pursue investment opportunities that would be otherwise advantageous to it in order to satisfy the source-of-income or asset-diversification requirements for us to qualify as a REIT. Thus, compliance with the REIT requirements may hinder the Operating Partnership’s ability to make certain attractive investments and, thus, reduce the Operating Partnership’s income and amounts available to service its indebtedness.
Our ability to own stock and securities of TRSs is limited and our transactions with our TRSs will cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on arm's-length terms.
A REIT may own up to 100% of the stock of one or more TRSs. A TRS may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 20% of the value of a REIT's assets may consist of stock or securities of one or more TRSs. In addition, the rules applicable to TRSs limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The rules also impose a 100% excise tax on “redetermined rent,” “redetermined deductions” or “excess interest” to the extent rent paid by a TRS exceeds an arm’s-length amount, and a 100% excise tax on “redetermined TRS service income” (generally, gross income (less deductions allocable thereto) of a TRS attributable to services provided to, or on behalf of, the parent REIT that is less than the amounts that would have been paid by a REIT to the TRSs if based on arm’s-length negotiations).
Our TRSs will pay U.S. federal, state and local income tax on its taxable income. The after-tax net income of our TRSs will be available for distribution to us but generally is not required to be distributed. We believe that the aggregate value of the stock and securities of our TRSs is less than 20% of the value of our total assets (including the stock and securities of our TRSs). Furthermore, we monitor the value of our respective investments in our TRSs for the purpose of ensuring compliance with the ownership limitations applicable to TRSs. We scrutinize all of our transactions involving our TRSs to ensure that they are entered into on arm's-length terms to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the 20% limitation discussed above or avoid application of the 100% excise tax discussed above.
If the Operating Partnership fails to qualify as a partnership for U.S. federal income tax purposes, QTS would fail to qualify as a REIT and suffer other adverse consequences.
The Operating Partnership believes that it has been organized and operated in a manner so as to be treated as a partnership, and not an association or publicly traded partnership taxable as a corporation for U.S. federal income tax purposes. As a partnership, it is not subject to U.S. federal income tax on its income. Instead, each of its partners, including QTS, is allocated that partner’s share of the Operating Partnership’s income. No assurance can be provided, however, that the IRS will not challenge its status as a partnership for U.S. federal income tax purposes, or that a court would not sustain such a challenge. If the IRS were successful in treating the Operating Partnership as an association or publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, QTS would fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly, would cease to qualify as a REIT, which could adversely affect our ability to raise capital and the Operating Partnership’s ability to service its indebtedness. Also, the failure of the Operating Partnership to qualify as a partnership would cause it to become subject to U.S. federal corporate income tax, which would reduce significantly the amount of its cash available for debt service and for distribution to its partners, including QTS.
QTS has a carryover tax basis in respect of certain of its assets acquired in connection with the IPO, and the amount that QTS must distribute to its stockholders therefore may be higher.
As a result of the tax-free merger of General Atlantic REIT, Inc. (“GA REIT”) with and into QTS in connection with the IPO, certain of the operating properties, including Atlanta-Metro, Atlanta-Suwanee, Richmond, Santa Clara and Miami, have carryover tax bases that are lower than the fair market values of these properties at the time QTS acquired them in connection with the IPO. As a result of this lower aggregate tax basis, QTS will recognize higher taxable gain upon the sale of these assets, and QTS will be entitled to lower depreciation deductions on these assets than if it had purchased these properties in taxable transactions at the time of the IPO. Lower depreciation deductions and increased gains on sales generally will increase the amount of QTS’ required distribution under the REIT rules.
The new tax law imposed further limits on the deductibility of certain executive compensation expense, which could result in greater taxes for our TRS or the need to increase distributions to our stockholders.
Under Section 162(m) of the Internal Revenue Code, a publicly held corporation is generally limited to a $1 million annual tax deduction for compensation paid to each of its “covered employees.”
Pursuant to the final Section 162(m) regulations released on December 18, 2020, Section 162(m) applies to a publicly held corporation’s distributive share of a partnership’s deduction for compensation expense if the deduction is attributable to compensation paid by the partnership after December 18, 2020 (unless paid pursuant to a written binding contract in effect on December 20, 2019); therefore, deductions for compensation paid to our executive officers may be limited. If compensation deductions are limited, our required REIT distributions will be higher.
Legislative or other actions affecting REITs could materially and adversely affect us and our investors as well as the Operating Partnership.
The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury. Changes to the tax laws, with or without retroactive application, could materially and adversely affect us and our stockholders as well as the Operating Partnership. We cannot predict when or if any new U.S. federal income tax law, regulation, or administrative interpretation, or any amendment to any existing U.S. federal income tax law, regulation or administrative interpretation will be adopted, promulgated or become effective and any such law, regulation, or interpretation may take effect retroactively. New legislation, Treasury Regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to qualify as a REIT or the U.S. federal income tax consequences of such qualification. We urge you to consult with your tax advisor with respect to the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our stock. Although REITs generally receive certain tax advantages compared to entities taxed as C corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be treated for U.S. federal income tax purposes as a C corporation.
General Risk Factors
Our business could be negatively affected as a result of actions by activist stockholders.
Stockholder campaigns to effect changes in publicly-traded companies are sometimes led by activist investors through various corporate actions, including proxy contests. Responding to these actions can disrupt our operations by diverting the attention of management and our employees as well as our financial resources. Stockholder activism could create perceived uncertainties as to our future direction, which could result in the loss of potential business opportunities and make it more difficult to attract and retain qualified personnel and business partners. Furthermore, the election of individuals to our board of directors with a specific agenda could adversely affect our ability to effectively and timely implement our strategic plans.
If we fail to maintain an effective system of integrated internal controls, we may not be able to accurately and timely report our financial results.
An inability to maintain effective disclosure controls and procedures and internal control over financial reporting could adversely affect our results of operation, could cause us to fail to meet our reporting obligations under the Exchange Act on a timely basis or could result in material misstatements or omissions in our Exchange Act reports (including our financial statements), any of which, as well as the perception thereof, could cause investors to lose confidence in the company and could have a material adverse effect on us and cause the market price of our common stock to decline significantly.
We are exposed to ongoing litigation and other legal and regulatory actions, which may divert management’s time and attention, require us to pay damages and expenses or restrict the operation of our business.
We are subject to the risk of legal claims and proceedings and regulatory enforcement actions in the ordinary course of our business and otherwise, and we could incur significant liabilities and substantial legal fees as a result of these actions. Our management may devote significant time and attention to the resolution (through litigation, settlement or otherwise) of these actions, which would detract from our management’s ability to focus on our business. Any such resolution could involve payment of damages or expenses by us, which may be significant. In addition, any such resolution could involve our agreement to terms that restrict the operation of our business. The results of legal proceedings cannot be predicted with certainty. We cannot guarantee losses incurred in connection with any current or future legal or regulatory proceedings or actions will not exceed any provisions we may have set aside in respect of such proceedings or actions or will not exceed any available insurance coverage. The occurrence of any of these events could have a material adverse effect on us.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
Our Portfolio
We operate a portfolio of 28 data center properties located throughout the United States, Canada and Europe. Within the U.S., we are located in some of the top U.S. data center markets and other high-growth markets. Our data centers are highly specialized, full-service, mission-critical facilities used by our customers to house, power and cool the networking equipment and computer systems that support their most critical business processes.
Operating Properties
The following table presents an overview of the portfolio of operating properties that we own or lease, referred to herein as our operating properties, based on information as of December 31, 2020. The table excludes data center development associated with available land we own that is not being actively developed. On February 22, 2019, the Company entered into an agreement whereby it contributed a data center in Manassas, Virginia to a 50% owned unconsolidated entity. Balances in the following table represent the unconsolidated entity at its 100% share. QTS’s pro rata share of the unconsolidated entity is 50%.
Operating Net Rentable Square Feet (Operating NRSF) (1)
Property Year
Acquired (2)
Gross
Square
Feet (3)
Raised
Floor (4)
Office &
Other (5)
Supporting
Infrastructure (6)
Total % Occupied (7)
Annualized
Rent (8)
Available
Utility Power
(MW) (9)
Basis of
Design (BOD)
NRSF Current Raised
Floor as a
% of BOD
Richmond, VA 2010 1,318,353 140,398 51,093 153,450 344,941 94.2 % $ 37,187,047 110 557,309 25.2 %
Atlanta, GA (DC - 1) 2006 968,695 527,186 36,953 364,815 928,954 98.1 % 121,463,895 72 527,186 100.0 %
Irving, TX 2013 698,000 208,114 15,300 228,656 452,070 95.6 % 55,202,607 140 275,701 75.5 %
Princeton, NJ 2014 553,930 58,157 2,229 111,405 171,791 100.0 % 10,514,807 22 158,157 36.8 %
Atlanta, GA (DC - 2) 2020 495,000 55,896 9,250 51,250 116,396 100.0 % 13,665,431 100 240,000 23.3 %
Chicago, IL 2014 474,979 98,500 4,931 98,022 201,453 92.0 % 24,693,311 56 215,855 45.6 %
Ashburn, VA (DC - 1) (10)
2018 445,000 148,824 13,199 152,444 314,467 96.7 % 12,979,980 50 178,000 83.6 %
Suwanee, GA 2005 369,822 212,975 8,697 107,128 328,800 88.7 % 60,024,479 36 212,975 100.0 %
Piscataway, NJ 2016 360,000 118,263 19,243 116,289 253,795 90.7 % 23,105,473 111 176,000 67.2 %
Netherlands facilities (11)
2019 312,114 38,632 - 47,367 85,999 84.7 % 5,830,309 92 158,000 24.5 %
Fort Worth, TX 2016 261,836 71,147 17,232 125,794 214,173 67.4 % 5,713,534 50 80,000 88.9 %
Hillsboro, OR 2020 158,000 23,563 1,000 20,240 44,803 81.3 % 1,936,164 30 85,000 27.7 %
Santa Clara, CA (12)
2007 135,322 59,905 1,238 45,094 106,237 89.1 % 23,553,172 11 80,940 74.0 %
Sacramento, CA 2012 92,644 54,595 2,794 23,916 81,305 45.5 % 10,970,678 8 54,595 100.0 %
Dulles, VA (13)
2017 66,751 26,625 - 22,206 48,831 97.5 % 17,995,391 11 44,545 59.8 %
Leased facilities (14)
2006 & 2015 187,706 59,065 18,650 41,901 119,616 88.4 % 23,634,711 11 79,717 74.1 %
Other (15)
Misc. 147,435 22,380 98,674 30,074 151,128 75.8 % 9,063,116 5 22,380 100.0 %
7,045,587 1,924,225 300,483 1,740,051 3,964,759 92.5 % $ 457,534,105 915 3,146,360 61.2 %
New Property Development
Ashburn, VA (DC - 2) (16)
2021 310,000 - - - - - % - - 169,664 - %
Manassas, VA (DC - 2) (17)
2021 340,000 - - - - - % - - 160,000 - %
Unconsolidated Properties - at the Entity's 100% Share (18)
Manassas, VA (DC - 1) 2018 118,031 33,600 12,663 39,044 85,307 100.0 % 9,856,599 135 66,324 50.7 %
Total Properties 7,813,618 1,957,825 313,146 1,779,095 4,050,066 92.6 % $ 467,390,704 1,050 3,542,348 55.3 %
(1)Represents the total square feet of a building that is currently leased or available for lease plus developed supporting infrastructure, based on engineering drawings and estimates, but does not include space held for redevelopment or space used for our own office space.
(2)With respect to acquisitions, represents the year a property was acquired. With respect to properties under lease, represents the year our initial lease commenced for the property. With respect to new data center construction, represents the year the facility was opened or expected to be opened.
(3)With respect to our owned properties, gross square feet represents the entire building area. With respect to leased properties, gross square feet represents that portion of the gross square feet subject to our lease. Gross square feet includes 424,246 square feet of our office and support space, which is not included in operating NRSF.
(4)Represents management’s estimate of the portion of NRSF of the facility with available power and cooling capacity that is currently leased or readily available to be leased to customers as data center space based on engineering drawings.
(5)Represents the operating NRSF of the facility other than data center space (typically office and storage space) that is currently leased or available to be leased.
(6)Represents required data center support space, including mechanical, telecommunications and utility rooms, as well as building common areas.
(7)Calculated as data center raised floor that is subject to a signed lease for which billing has commenced divided by leasable raised floor based on the current configuration of the properties, expressed as a percentage.
(8)We define annualized rent as MRR multiplied by 12. We calculate MRR as monthly contractual revenue under executed contracts as of a particular date, which includes revenue from our rental and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed contracts (as defined below) as of a particular date, unless otherwise specifically noted, nor does it reflect the accounting associated with any free rent, rent abatements or future scheduled rent increases.
(9)Represents installed utility power and transformation capacity that is available for use by the facility as of December 31, 2020.
(10)This property was formerly known as “Ashburn, VA” but has been renamed “Ashburn, VA (DC-1)” to distinguish between the existing data center and the new property development shown as “Ashburn, VA (DC-2)” within the New Property Development section.
(11)Consists of two data centers located in Eemshaven, Netherlands and Groningen, Netherlands.
(12)Subject to long-term ground lease.
(13)Consists of one data center in Dulles, Virginia. The Dulles campus previously consisted of two data center buildings, however as of December 31, 2020, the Company had relocated customers from the smaller and older facility to the new facility in order to optimize its operating cost structure.
(14)Includes 7 facilities. All facilities are leased, including one subject to a finance lease.
(15)Consists of Miami, FL; Lenexa, KS; and Overland Park, KS facilities.
(16)Represents the development of a new data center building at our Ashburn, VA campus.
(17)Represents the development of a new data center building at our Manassas, VA campus. The Manassas, VA (DC - 2) data center is 100% owned and consolidated by QTS and is separate from the Manassas, VA (DC-1) data center that is owned by the unconsolidated entity.
(18)Represents our unconsolidated entity at 100% share. Our equity ownership of the unconsolidated entity is 50%.
Development Pipeline
The following table presents an overview of our development pipeline, based on information as of December 31, 2020.
Raised Floor NRSF
Overview as of December 31, 2020
Property Current
NRSF in
Service Under
Construction (1)
Future
Available (2)
Basis of
Design
NRSF Approximate
Acreage of Available Land (3)
Richmond, VA 140,398 27,000 389,911 557,309 182.2
Atlanta, GA (DC - 1) 527,186 - - 527,186 -
Irving, TX 208,114 34,000 33,587 275,701 29.4
Princeton, NJ 58,157 - 100,000 158,157 65.0
Atlanta, GA (DC - 2) 55,896 61,500 122,604 240,000 50.3
Chicago, IL 98,500 28,000 89,355 215,855 23.0
Ashburn, VA (DC - 1) (4)
148,824 14,000 15,176 178,000 7.3
Suwanee, GA 212,975 - - 212,975 15.4
Piscataway, NJ 118,263 20,000 37,737 176,000 -
Netherlands facilities (5)
38,632 - 119,368 158,000 -
Fort Worth, TX 71,147 - 8,853 80,000 26.5
Hillsboro, OR 23,563 - 61,437 85,000 34.7
Santa Clara, CA 59,905 4,000 17,035 80,940 -
Sacramento, CA 54,595 - - 54,595 -
Dulles, VA 26,625 - 17,920 44,545 -
Leased facilities (6)
59,065 - 20,652 79,717 -
Phoenix, AZ - - - - 84.2
Other (7)
22,380 - - 22,380 113.0
1,924,225 188,500 1,033,635 3,146,360 631.0
New Property Development
Ashburn, VA (DC - 2) (8)
- 73,000 96,664 169,664 55.6
Manassas, VA (DC - 2) (9)
- 30,000 130,000 160,000 98.2
Unconsolidated Properties - at the Entity's 100% Share (10)
Manassas, VA (DC-1) 33,600 11,000 21,724 66,324 -
1,957,825 302,500 1,282,023 3,542,348 784.8
(1)Reflects NRSF at a facility for which the initiation of substantial activities has begun to prepare the property for its intended use on or before December 31, 2021.
(2)Reflects NRSF at a facility for which the initiation of substantial activities has begun to prepare the property for its intended use after December 31, 2021.
(3)The total cost basis of available land, which is land available for future development, is approximately $253.0 million, of which approximately $214.6 million is included in Construction in Progress on the consolidated balance sheet. The Basis of Design NRSF does not include any build-out on the available land.
(4)This property was formerly known as “Ashburn, VA” but has been renamed “Ashburn, VA (DC-1)” to distinguish between the existing data center and the new property development shown as “Ashburn, VA (DC-2)” within the new property development section.
(5)Consists of two data centers located in Eemshaven, Netherlands and Groningen, Netherlands.
(6)Includes 7 facilities. All facilities are leased, including one subject to a finance lease.
(7)Consists of Miami, FL; Lenexa, KS; and Overland Park, KS facilities as well as land holdings in Texas.
(8)Represents the development of a new data center building at our Ashburn, VA campus.
(9)Represents the development of a new data center building at our Manassas, VA campus. The Manassas, VA (DC - 2) data center is 100% owned and consolidated by QTS and is separate from the Manassas, VA (DC-1) data center owned by the unconsolidated entity.
(10)Represents our unconsolidated entity at 100% share. Our equity ownership of the unconsolidated entity is 50%.
The table below sets forth our estimated costs for completion of our major development projects currently under construction and expected to be operational by December 31, 2021 (dollars in millions):
Under Construction Costs (1)
Property Actual (2)
Estimated Cost
to Completion (3)
Total Expected
Completion date
Atlanta, GA (DC - 2) $ 63 $ 93 $ 156 Q1, Q2 & Q4 2021
Richmond, VA 30 7 37 Q3 2021
Piscataway, NJ 7 27 34 Q2 & Q4 2021
Irving, TX 24 10 34 Q1 & Q2 2021
Ashburn, VA (DC - 1) (4)
10 21 31 Q1 2021
Hillsboro, OR 12 15 27 Q1 & Q2 2021
Chicago, IL 7 19 26 Q2 2021
Santa Clara, CA 7 11 18 Q2 2021
Totals 160 203 363
New Property Development
Ashburn, VA (DC - 2) (5)
45 109 154 Q2, Q3 & Q4 2021
Manassas, VA (DC - 2) (6)
5 90 95 Q4 2021
Unconsolidated Properties - at the Company's 50% Share (7)
Manassas, VA (DC - 1) 2 11 13 Q3 2021
Totals $ 212 $ 413 $ 625
(1)In addition to projects currently under construction, our near-term development projects are expected to be delivered in a modular manner, and we currently expect to invest additional capital to complete these near term projects. The ultimate timing and completion of, and the commitment of capital to, our future development projects are within our discretion and will depend upon a variety of factors, including the actual contracts executed, availability of financing and our estimation of the future market for data center space in each particular market.
(2)Represents actual costs under construction through December 31, 2020. In addition to the $212 million of construction costs incurred through December 31, 2020 for development expected to be completed by December 31, 2021, as of December 31, 2020 we had incurred $817 million of additional costs (including acquisition costs and other capitalized costs) for other development projects that are expected to be completed after December 31, 2021.
(3)Represents management’s estimate of the additional costs required to complete the current NRSF under development. There may be an increase in costs if customers’ requirements exceed our current basis of design.
(4)This property was formerly known as “Ashburn, VA” but has been renamed “Ashburn, VA (DC-1)” to distinguish between the existing data center and the new property development labeled “Ashburn, VA (DC - 2)” within the new property development section.
(5)Represents the development of a new data center building in our Ashburn, VA market.
(6)Represents the development of a new data center building at our Manassas, VA campus. The Manassas, VA (DC - 2) data center is 100% owned and consolidated by QTS and is separate from the Manassas, VA (DC-1) data center owned by the unconsolidated entity.
(7)Represents our unconsolidated entity at 100% share. Our equity ownership of the unconsolidated entity is 50%.
We also own an aggregate of approximately 785 acres of additional available land at certain of our data center properties which can support the development of approximately 16.4 million additional square feet of raised floor.
Customer Diversification
Our portfolio is currently leased to more than 1,200 customers comprised of companies of all sizes representing an array of industries, each with unique and varied business models and needs. The following table sets forth information regarding the 10 largest customers in our portfolio based on annualized rent as of December 31, 2020:
Principal Customer Industry Number
of
Locations Annualized Rent (1)
% of Portfolio
Annualized
Rent Weighted Average Remaining Lease Term (Months) (2)
Content & Digital Media 2 $ 60,453,011 13.1 % 37
Cloud & IT Services 4 24,916,488 5.4 % 52
Cloud & IT Services 1 19,259,485 4.2 % 15
Content & Digital Media 4 15,889,964 3.4 % 19
Cloud & IT Services 8 14,451,843 3.1 % 38
Cloud & IT Services 5 11,544,146 2.5 % 46
Cloud & IT Services 3 10,878,813 2.4 % 44
Network 14 7,056,432 1.5 % 56
Government & Security 1 6,977,837 1.5 % 27
Retail 1 6,640,712 1.4 % 18
Total / Weighted Average $ 178,068,731 38.5 % 36
(1)Annualized rent is presented for leases commenced as of December 31, 2020. We define annualized rent as MRR multiplied by 12. We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases (which represent customer leases that have been executed but for which lease payments have not commenced) as of a particular date unless otherwise specifically noted. This amount reflects the annualized cash rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power reimbursements.
(2)Weighted average based on customer’s percentage of total annualized rent expiring as of December 31, 2020.
The following chart shows the breakdown of all our customers by industry based on annualized rent as of December 31, 2020:
Industry % of Total Annualized Rent
as of December 31, 2020
Cloud & IT Services 31.8 %
Content & Digital Media 20.7 %
Financial Services 13.8 %
Network 7.5 %
Health Care 6.8 %
Government & Security 5.7 %
Retail 4.8 %
Other 8.9 %
Total 100.0 %
Lease Distribution by Product Type
Product Type (1)
Total Leased
Raised Floor (2)
% of Portfolio
Leased Raised
Floor Annualized
Rent (3)
% of Portfolio
Annualized
Rent
Hyperscale 866,084 60 % $ 170,692,207 37 %
Hybrid Colocation 582,877 40 % 291,770,198 63 %
Portfolio Total 1,448,961 100 % $ 462,462,405 100 %
(1)Represents all leases in our portfolio for which billing has commenced as of December 31, 2020.
(2)Represents the square footage of raised floor at a property under lease as specified in the lease and that has commenced billing as of December 31, 2020.
(3)Annualized rent is presented for leases commenced as of December 31, 2020. We define annualized rent as MRR multiplied by 12. We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This amount reflects the annualized cash rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power reimbursements.
Lease Expirations
The following table sets forth a summary schedule of the lease expirations as of December 31, 2020 at the properties in our portfolio, excluding leases that have been booked but not billed. Unless otherwise stated in the footnotes, the information set forth in the table assumes that customers exercise no renewal options and all early termination rights are exercised:
Year of Lease
Expiration Number of
Leases
Expiring (1)
Total Raised
Floor of
Expiring Leases % of Portfolio
Leased Raised
Floor Annualized Rent (2)
% of Portfolio
Annualized Rent
Month-to-Month (3)
761 31,512 2 % $ 23,997,743 5 %
2021 1,952 315,377 22 % 130,196,869 28 %
2022 1,278 356,411 25 % 124,564,587 27 %
2023 836 140,732 10 % 67,924,294 15 %
2024 340 179,773 12 % 48,856,740 11 %
2025 220 204,874 14 % 30,630,101 7 %
2026 41 38,563 3 % 5,049,819 1 %
2027 72 57,673 4 % 5,908,672 1 %
2028 26 10,009 1 % 1,079,479 - %
2029 20 45,504 2 % 10,250,101 2 %
2030 4 68,525 5 % 14,004,000 3 %
After 2030 1 8 - % - - %
Portfolio Total 5,551 1,448,961 100 % $ 462,462,405 100 %
(1)Represents each agreement with a customer signed as of December 31, 2020 for which billing has commenced; a lease agreement could include multiple spaces and a customer could have multiple leases.
(2)Annualized rent is presented for leases commenced as of December 31, 2020. We define annualized rent as MRR multiplied by 12. We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This amount reflects the annualized cash rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power reimbursements.
(3)Consists of annualized rent associated with customer leases whose original contract terms ended on December 31, 2020 and have signed a renewal or are eligible for renewal, as well as customers whose leases expired prior to December 31, 2020 and have continued on a month-to-month basis. We do not typically enter into month-to-month leases.
Description of Our Properties
Below is a description of our properties. More detail is provided for the properties that represent more than ten percent of our total assets or accounted for more than ten percent of our aggregate gross revenues or both as of and for the year ended December 31, 2020.
Atlanta, Georgia Campus
Our Atlanta (DC-1) facility, formerly known as Atlanta-Metro, is currently our largest data center based on total operating NRSF. As of December 31, 2020, the property consisted of approximately 969,000 gross square feet with approximately 929,000 total operating NRSF, including approximately 527,000 raised floor operating NRSF. An on-site Georgia Power substation supplies 72 MW of utility power to the facility, which is backed up by diesel generators, and the facility has 120
MW of transformer capacity. The facility also includes a small amount of private “Class A” office space. As of December 31, 2020, the facility was approximately 98% occupied by 239 customers across our product offerings.
Portions of the Atlanta (DC-1) facility are included in our development pipeline, as we plan to continue to expand the facility in multiple phases. During the year ended December 31, 2020, we placed approximately 49,000 NRSF of raised floor into service. Upon completion of the build-out of the facility, we anticipate that the facility would contain approximately 929,000 total operating NRSF, including approximately 527,000 NRSF of raised floor.
We are the owner of our Atlanta (DC-1) facility. We were previously the owner of the facility through a bond-financed sale-leaseback structure. The structure was necessary in the State of Georgia to receive property tax abatement. In 2006, the Development Authority of Fulton County (“DAFC”) issued a taxable industrial development revenue bond to us with a face amount of $300 million in exchange for legal title to the facility. The acquisition of the bond by us was “cashless” as the bond was issued to us in exchange for title to the facility. The bond matured on December 1, 2019, at which time we exercised our option to purchase the facility for $10.
In October 2018, we completed the acquisition of approximately 55 acres of land in Atlanta, Georgia adjacent to our existing Atlanta (DC-1) data center. In addition, this facility is adjacent to approximately 72 acres of undeveloped land, inclusive of the land purchase in October 2018, owned by us that we estimate could be developed to provide, at a minimum, approximately 2.5 million additional NRSF of raised floor. Additionally, during the fourth quarter of 2019, the Company sold certain land improvements near its Atlanta (DC-1) facility and entered into an underlying ground lease and services agreement with the buyer.
During the year ended December 31, 2020, we completed the first phase of construction of a second megascale data center Atlanta (DC-2) on our land adjacent to the existing Atlanta (DC-1) facility. During the year ended December 31, 2020, we opened the facility and placed approximately 56,000 NRSF of raised floor into service. The Atlanta (DC-2) facility is included within our development pipeline, as we plan to develop additional phases of the facility. Upon completion of the build out of the facility, we anticipate that the facility would contain approximately 495,000 gross square feet and 240,000 raised floor NRSF. We anticipate that this phase of development will cost (in addition to the $63 million already incurred as of December 31, 2020) approximately $93 million in the aggregate based on current estimates.
Lease Expirations. The following table sets forth a summary schedule of lease expirations for leases in place as of December 31, 2020 at the Atlanta, Georgia campus (inclusive of DC-1 and DC-2). Unless otherwise stated in the footnotes, the information set forth in the table assumes that customers exercise no renewal options and all early termination rights.
Year of Lease
Expiration Number of
Leases
Expiring (1)
Total
Raised Floor of
Expiring Leases % of Facility
Leased
Raised Floor Annualized Rent (2)
% of Facility
Annualized
Rent
Month-to-Month (3)
195 13,663 3 % $ 7,118,136 5 %
2021 304 150,879 30 % 39,667,038 29 %
2022 213 194,225 39 % 46,565,589 35 %
2023 117 34,532 7 % 13,115,497 10 %
2024 66 32,249 7 % 9,202,880 7 %
2025 29 27,189 5 % 5,856,974 4 %
2026 6 - - % 138,226 - %
2027 23 1,216 - % 604,769 - %
2028 - - - % - - %
2029 10 3,445 1 % 692,217 1 %
2030 1 38,404 8 % 12,168,000 9 %
After 2030 - - - % - - %
Portfolio Total 964 495,802 100 % $ 135,129,326 100 %
(1)Represents each lease with a customer signed as of December 31, 2020 for which billing has commenced; a lease agreement could include multiple spaces and/or service orders and a customer could have multiple leases.
(2)Annualized rent is presented for leases commenced as of December 31, 2020. We define annualized rent as MRR multiplied by 12. We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and managed services activities, but
excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This amount reflects the annualized cash rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power reimbursements.
(3)Consists of annualized rent associated with customer leases whose original contract terms ended on December 31, 2020 and have signed a renewal or are eligible for renewal, as well as customers whose leases expired prior to December 31, 2020 and have continued on a month-to-month basis. We do not typically enter into month-to-month leases.
Primary Customers. The following table summarizes information regarding primary customers, which are customers occupying 10% or more of the leased raised floor of the Atlanta, Georgia campus (inclusive of DC-1 and DC-2), as of December 31, 2020:
Principal Customer Industry Weighted Average
Remaining Lease
Term (Months) (1)
Renewal
Option Annualized
Rent (2)
% of Facility
Annualized Rent
Content & Digital Media 37 2x3 years & 1x5 years $ 60,453,011 45 %
Content & Digital Media 15 2x5 years 11,755,448 9 %
Cloud & IT Services 42 2x3 years 9,162,813 7 %
(1)Weighted average based on customer’s percentage of total annualized rent expiring as of December 31, 2020.
(2)Annualized rent is presented for leases commenced as of December 31, 2020. We define annualized rent as MRR multiplied by 12. We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This amount reflects the annualized cash rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power reimbursements.
Historical Percentage Leased and Annualized Rental Rates. The following table sets forth the leasable raised floor, percentage leased, annualized rent and annualized rent per leased raised square foot for the Atlanta, Georgia campus (inclusive of DC-1 and DC-2):
Date Facility Leasable
Raised Floor % Occupied and
Billing (1)
Annualized
Rent (2)
Annualized Rent
per Leased
Square Foot
December 31, 2020 504,420 98 % $ 135,129,326 $ 273
December 31, 2019 449,712 96 % 114,298,127 266
December 31, 2018 408,986 99 % 101,394,293 250
December 31, 2017 392,114 96 % 96,559,779 256
December 31, 2016 388,227 94 % 92,848,008 254
(1)Calculated as data center raised floor that is subject to a signed lease for which billing has commenced as of the applicable date, divided by leasable raised floor based on the then current configuration of the property, expressed as a percentage.
(2)Annualized rent is presented for leases commenced as of the applicable date. We define annualized rent as MRR multiplied by 12. We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This amount reflects the annualized cash rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power reimbursements.
Atlanta-Suwanee
Our Suwanee, Georgia, or Atlanta-Suwanee, facility consists of approximately 370,000 gross square feet, and as of December 31, 2020 it had approximately 329,000 total operating NRSF, including approximately 213,000 raised floor operating NRSF. Georgia Power supplies 36 MW of utility power to the facility, which is backed up by diesel generators. The facility also contains a small amount of “Class A” private office space and our operating service center, which provides 24x7 support to all of our customers and data centers. As of December 31, 2020, the facility was approximately 89% occupied by 303 customers. We are the fee simple owner of the Atlanta-Suwanee facility.
We are not currently redeveloping significant portions of the Atlanta-Suwanee facility.
The facility is adjacent to 15 acres of undeveloped land owned by us that we believe could be developed to provide, at a minimum, an additional approximately 310,000 total operating NRSF, including approximately 210,000 NRSF of raised floor. These 15 acres of undeveloped land are not included in our current development plans.
Lease Expirations. The following table sets forth a summary schedule of the lease expirations for leases in place as of December 31, 2020 at the Atlanta-Suwanee facility. Unless otherwise stated in the footnotes, the information set forth in the table assumes that customers exercise no renewal options and all early termination rights.
Year of Lease
Expiration Number of
Leases
Expiring (1)
Total
Raised Floor of
Expiring Leases % of Facility
Leased
Raised Floor Annualized
Rent (2)
% of Facility
Annualized
Rent
Month-to-Month (3)
104 3,573 3 % $ 3,172,727 5 %
2021 436 32,445 27 % 21,753,256 36 %
2022 226 21,326 17 % 13,310,534 22 %
2023 161 23,457 19 % 13,286,162 22 %
2024 19 2,791 2 % 1,247,209 2 %
2025 18 19,534 16 % 5,055,366 9 %
2026 1 - - % 1,500 - %
2027 34 20,194 16 % 2,197,725 4 %
After 2027 - - - % - - %
Total 999 123,320 100 % $ 60,024,479 100 %
(1)Represents each lease with a customer signed as of December 31, 2020 for which billing has commenced; a lease agreement could include multiple spaces and/or service orders and a customer could have multiple leases.
(2)Annualized rent is presented for leases commenced as of December 31, 2020. We define annualized rent as MRR multiplied by 12. We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This amount reflects the annualized cash rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power reimbursements.
(3)Consists of annualized rent associated with customer leases whose original contract terms ended on December 31, 2020 and have signed a renewal or are eligible for renewal, as well as customers whose leases expired prior to December 31, 2020 and have continued on a month-to-month basis. We do not typically enter into month-to-month leases.
Primary Customers. The following table summarizes information regarding primary customers, which are customers occupying 10% or more of the leased raised floor of the Atlanta-Suwanee facility, as of December 31, 2020:
Principal Customer Industry Weighted Average
Remaining Lease
Term (Months) (1)
Renewal
Option Annualized Rent (2)
% of Facility
Annualized Rent
Cloud & IT Services 25 2x5 years $ 5,456,940 9 %
Financial Services 59 2x5 years 2,432,200 4 %
Network 79 2x5 years 2,291,925 4 %
(1)Weighted average based on customer’s percentage of total annualized rent expiring as of December 31, 2020.
(2)Annualized rent is presented for leases commenced as of December 31, 2020. We define annualized rent as MRR multiplied by 12. We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This amount reflects the annualized cash rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power reimbursements.
Historical Percentage Leased and Annualized Rental Rates. The following table sets forth the leasable raised floor, percentage leased, annualized rent and annualized rent per leased raised square foot for the Atlanta-Suwanee facility:
Date Facility Leasable
Raised Floor % Occupied and
Billing (1)
Annualized
Rent (2)
Annualized Rent
per Leased
Square Foot
December 31, 2020 138,993 89 % $ 60,024,479 $ 487
December 31, 2019 135,050 93 % 60,550,226 480
December 31, 2018 134,684 92 % 55,080,296 445
December 31, 2017 135,544 92 % 56,998,497 459
December 31, 2016 138,722 80 % 59,206,902 537
(1)Calculated as data center raised floor that is subject to a signed lease for which billing has commenced as of the applicable date, divided by leasable raised floor based on the then current configuration of the property, expressed as a percentage.
(2)Annualized rent is presented for leases commenced as of the applicable date. We define annualized rent as MRR multiplied by 12. We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This amount reflects the annualized cash rental payments. It does not reflect any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power reimbursements.
Irving
We purchased our Irving facility in February 2013. Prior to our purchase, the facility was operated as a semiconductor fabrication facility. Similar to our Richmond facility, the Irving facility has significant pre-existing infrastructure. Specifically, the Irving facility has diverse feeds of 140 MW of utility power and approximately 698,000 gross square feet on 39 acres. We are the fee simple owner of the Irving facility.
We acquired our Irving facility because we believe that we will be able to execute a redevelopment strategy similar to our Richmond facility. Given the infrastructure that was already in place due to its former use as a semiconductor fabrication facility, we believe that the incremental costs to redevelop data center raised floor space in this facility will be lower compared to typical costs for ground-up development or redevelopments of other building types. In addition, the access to a significant amount of utility power provides the necessary power capacity to support our growth strategy for our Irving data center. Furthermore, we believe that the Dallas market is an important data center market primarily due to its strong business environment and relatively affordable power costs.
The Irving facility is included in our development pipeline, as we continue to convert the entire facility into an operating data center in multiple phases. During the year ended December 31, 2020, we placed approximately 20,000 raised floor NRSF into service. Our current under construction redevelopment plans call for the addition of up to approximately 84,000 total operating NRSF, including approximately 34,000 NRSF of raised floor. We own sufficient undeveloped land on the site, approximately 29 acres, that we believe could also be developed to provide an additional 1.3 million total operating NRSF, of which approximately 680,000 NRSF would be raised floor. These 29 acres of undeveloped land are not included in our current development plans.
As of December 31, 2020, the facility was approximately 96% occupied by 175 customers.
Lease Expirations. The following table sets forth a summary schedule of the lease expirations for leases in place as of December 31, 2020 at the Irving facility. Unless otherwise stated in the footnotes, the information set forth in the table assumes that customers exercise no renewal options and all early termination rights.
Year of Lease
Expiration Number of
Leases
Expiring (1)
Total
Raised Floor of
Expiring Leases % of Facility
Leased
Raised Floor Annualized
Rent (2)
% of Facility
Annualized
Rent
Month-to-Month (3)
132 1,109 1 % $ 1,068,857 2 %
2021 218 7,653 5 % 5,722,573 11 %
2022 154 75,346 46 % 22,826,722 41 %
2023 124 15,524 9 % 6,361,439 12 %
2024 53 50,505 30 % 15,531,516 28 %
2025 51 10,519 6 % 3,463,631 6 %
2026 - - - % - - %
2027 2 2,013 1 % 191,761 - %
2028 4 3,151 2 % 36,108 - %
After 2028 - - - % - - %
Portfolio Total 738 165,820 100 % $ 55,202,607 100 %
(1)Represents each lease with a customer signed as of December 31, 2020 for which billing has commenced; a lease agreement could include multiple spaces and/or service orders and a customer could have multiple leases.
(2)Annualized rent is presented for leases commenced as of December 31, 2020. We define annualized rent as MRR multiplied by 12. We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This amount reflects the annualized cash rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power reimbursements.
(3)Consists of annualized rent associated with customer leases whose original contract terms ended on December 31, 2020 and have signed a renewal or are eligible for renewal, as well as customers whose leases expired prior to December 31, 2020 and have continued on a month-to-month basis. We do not typically enter into month-to-month leases.
Primary Customers. The following table summarizes information regarding primary customers, which are customers occupying 10% or more of the leased raised floor of the Irving facility, as of December 31, 2020:
Principal Customer Industry Weighted Average
Remaining Lease
Term (Months) (1)
Renewal
Option Annualized Rent (2)
% of Facility
Annualized Rent
Cloud & IT Services 15 2x5 years $ 19,259,485 35 %
Cloud & IT Services 45 2x5 years 13,944,738 25 %
(1)Weighted average based on customer’s percentage of total annualized rent expiring as of December 31, 2020.
(2)Annualized rent is presented for leases commenced as of December 31, 2020. We define annualized rent as MRR multiplied by 12. We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This amount reflects the annualized cash rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power reimbursements.
Historical Percentage Leased and Annualized Rental Rates. The following table sets forth the leasable raised floor, percentage leased, annualized rent and annualized rent per leased raised square foot for the Irving facility:
Date Facility Leasable
Raised Floor % Occupied and Billing (1)
Annualized
Rent (2)
Annualized Rent
per Leased
Square Foot
December 31, 2020 173,392 96 % $ 55,202,607 $ 333
December 31, 2019 165,838 95 % 51,259,686 326
December 31, 2018 165,518 95 % 50,666,209 323
December 31, 2017 138,307 96 % 43,876,400 331
December 31, 2016 120,776 97 % 29,318,582 251
(1)Calculated as data center raised floor that is subject to a signed lease for which billing has commenced as of the applicable date, divided by leasable raised floor based on the then current configuration of the property, expressed as a percentage.
(2)Annualized rent is presented for leases commenced as of the applicable date. We define annualized rent as MRR multiplied by 12. We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This amount reflects the annualized cash rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power reimbursements.
Ashburn
In August 2017, we completed the acquisition of approximately 24 acres of land in Ashburn, Virginia and constructed a mega data center facility (DC-1) on the acquired land parcel. As of December 31, 2020, the property consisted of approximately 445,000 gross square feet with approximately 314,000 total operating NRSF, including approximately 149,000 raised floor operating NRSF. Multiple utility feeders supply 50 MW of utility power to the facility, which is backed up by diesel generators. As of December 31, 2020, the facility was approximately 97% occupied by 14 customers across our product offerings.
The Ashburn facility is included in our development pipeline, as we plan to expand the mega data center in multiple phases. During the year ended December 31, 2020, we placed approximately 80,000 raised floor NRSF into service. Our current under construction development plans call for up to approximately 25,000 total operating NRSF, including approximately 14,000 NRSF of raised floor. We anticipate that this expansion will cost (in addition to $10 million already incurred as of December 31, 2020) approximately $21 million in the aggregate based on current estimates. Longer term, we can further expand the facility by approximately 39,000 total operating NRSF, of which approximately 15,000 would be raised floor. Upon completion of the build-out of the facility, we anticipate that the facility would contain approximately 445,000 gross square feet, including approximately 178,000 NRSF of raised floor.
In July 2019, we completed the acquisition of approximately 28 acres of land in Ashburn, Virginia and started constructing a mega data center facility (DC-2) on the acquired land parcel. As of December 31, 2020, the property was under development and consisted of approximately 310,000 gross square feet with approximately 170,000 raised floor operating NRSF. Ashburn (DC-2) is expected to be open in 2021.
In addition, in October 2017, we completed the acquisition of approximately 28 acres of land in Ashburn, Virginia, that we believe could also be developed to provide an additional 2 million total operating NRSF, of which approximately 1 million NRSF would be raised floor. These 28 acres of undeveloped land are not included in our current development plans or property table.
Lease Expirations. The following table sets forth a summary schedule of lease expirations for leases in place as of December 31, 2020 at the Ashburn (DC-1) facility. Unless otherwise stated in the footnotes, the information set forth in the table assumes that customers exercise no renewal options and all early termination rights.
Year of Lease
Expiration Number of
Leases
Expiring (1)
Total
Raised Floor of
Expiring Leases % of Facility
Leased
Raised Floor Annualized Rent (2)
% of Facility
Annualized
Rent
Month-to-Month (3)
5 16 0 % $ 50,400 - %
2021 5 48 0 % 87,036 1 %
2022 15 3,380 2 % 789,060 6 %
2023 20 15,420 11 % 4,840,176 37 %
2024 3 40 0 % 8,940 0 %
2025 5 85,290 62 % 3,723,600 29 %
2026 13 3,978 3 % 1,323,768 10 %
2027 4 14,405 11 % 1,239,000 10 %
2028 - - - % - - %
2029 - - - % - - %
2030 1 14,405 11 % 918,000 7 %
After 2030 1 8 - % - - %
Portfolio Total 72 136,990 100 % $ 12,979,980 100 %
(1)Represents each lease with a customer signed as of December 31, 2020 for which billing has commenced; a lease agreement could include multiple spaces and/or service orders and a customer could have multiple leases.
(2)Annualized rent is presented for leases commenced as of December 31, 2020. We define annualized rent as MRR multiplied by 12. We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This amount reflects the annualized cash rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power reimbursements.
(3)Consists of annualized rent associated with customer leases whose original contract terms ended on December 31, 2020 and have signed a renewal or are eligible for renewal, as well as customers whose leases expired prior to December 31, 2020 and have continued on a month-to-month basis. We do not typically enter into month-to-month leases.
Primary Customers. The following table summarizes information regarding primary customers, which are customers occupying 10% or more of the leased raised floor of the Ashburn (DC-1) facility, as of December 31, 2020:
Principal Customer Industry Weighted Average
Remaining Lease
Term (Months) (1)
Renewal
Option Annualized
Rent (2)
% of Facility
Annualized Rent
Health Care 28 2x3 year or 2x5 years $ 3,844,218 30 %
Cloud & IT Services 52 2x5 years 3,318,000 26 %
Cloud & IT Services 98 1x5 years 2,157,000 17 %
(1)Weighted average based on customer’s percentage of total annualized rent expiring as of December 31, 2020.
(2)Annualized rent is presented for leases commenced as of December 31, 2020. We define annualized rent as MRR multiplied by 12. We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This amount reflects the annualized cash rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power reimbursements.
Historical Percentage Leased and Annualized Rental Rates. The following table sets forth the leasable raised floor, percentage leased, annualized rent and annualized rent per leased raised square foot for the Ashburn (DC-1) facility:
Date Facility Leasable
Raised Floor % Occupied and
Billing (1)
Annualized
Rent (2)
Annualized Rent
per Leased
Square Foot
December 31, 2020 141,669 97 % $ 12,979,980 $ 95
December 31, 2019 68,487 95 % 6,474,751 99
December 31, 2018 14,230 100 % 2,157,036 152
(1)Calculated as data center raised floor that is subject to a signed lease for which billing has commenced as of the applicable date, divided by leasable raised floor based on the then current configuration of the property, expressed as a percentage.
(2)Annualized rent is presented for leases commenced as of the applicable date. We define annualized rent as MRR multiplied by 12. We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This amount reflects the annualized cash rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power reimbursements.
Below is a description of our other properties.
Richmond
Our Richmond, Virginia data center is situated on an approximately 292-acre site comprised of three large buildings available for data center redevelopment, each with two to three floors, and an administrative building that also has space available for data center redevelopment. As of December 31, 2020, the data center had approximately 1.3 million gross square feet with approximately 345,000 total operating NRSF, including approximately 140,000 of raised floor operating NRSF. The Richmond facility contains approximately 110 MW of utility power, which is backed up by diesel generators. As of December 31, 2020, one of these primary buildings was fully operational as a data center and another was partially operational. We believe that our Richmond facility is situated in an ideal location due to its proximity to Washington, DC, which offers numerous sources of demand for our products including the federal government, and provides geographical diversification from the Northern Virginia data center market. There are three core segments that we believe represent the most significant opportunity for our Richmond data center: entities associated with the federal government, given the highly secured nature of this facility and its proximity to Washington, DC; regulated industries, such as financial institutions, given our investments in security and regulatory compliance; and large enterprise customers, given the large scale of this facility. Our Richmond mega data center can accommodate large and growing customers, while also accommodating colocation and managed services customers, at attractive energy costs.
We acquired our Richmond facility in 2010 through a bankruptcy process. We estimate that the former owner, a semiconductor manufacturer, had invested over $1 billion to develop the facility prior to the bankruptcy. Because the facility operated as a semiconductor fabrication facility prior to our acquisition, it had significant pre-existing infrastructure, including 110 MW of utility power, approximately 25,000 tons of chiller capacity, “Class A” private office space and other related supporting infrastructure. As a result, to date the incremental cost to redevelop the facility into a data center has been lower than the typical cost of ground-up data center development or redevelopment of other types of buildings into data centers. As of December 31, 2020, the facility was approximately 94% occupied by 153 customers across our product offerings.
We are the fee simple owner of the Richmond facility.
The Richmond facility is included in our development pipeline. During the year ended December 31, 2020, we placed approximately 23,000 NRSF of raised floor into service. Our current under construction redevelopment plans call for the addition of up to 52,000 total operating NRSF, including 27,000 NRSF of raised floor. We anticipate that this expansion will cost approximately $7 million in the aggregate based on current estimates (in addition to costs already incurred as of December 31, 2020). Longer term, we can further expand the facility by approximately 888,000 total operating NRSF, of which approximately 390,000 NRSF would be raised floor. Upon completion of the build-out of the facility, we anticipate that the facility would contain approximately 1.3 million total operating NRSF, including approximately 557,000 NRSF of raised floor.
In addition, we own approximately 182 acres of undeveloped land on the site that we estimate could be developed to provide, at a minimum, an additional approximately 6.3 million total operating NRSF, of which approximately 3.5 million NRSF would be raised floor. These 182 acres of undeveloped land are not included in our current development plans.
Chicago
Our Chicago facility, which we acquired in July 2014, is the former Sun Times Press facility near downtown Chicago, Illinois. We are the fee simple owner of the Chicago facility. The facility consists of approximately 475,000 gross square feet, including approximately 99,000 raised floor operating NRSF.
The Chicago facility is included in our development pipeline, as we plan to convert the facility into an operating data center in multiple phases. During the year ended December 31, 2020, we placed approximately 29,000 raised floor NRSF into service. Our current under construction redevelopment plans call for the addition of up to approximately 177,000 total operating NRSF, including approximately 89,000 NRSF of raised floor. We own sufficient undeveloped land on the site, approximately 23 acres, that we believe could also be developed to provide an additional 350,000 total operating NRSF, of which approximately 200,000 NRSF would be raised floor. These 23 acres of undeveloped land are not included in our current development plans.
As of December 31, 2020, the facility was approximately 92% occupied by 87 customers.
Leased Facilities Acquired in 2015
We acquired leased facilities as part of our acquisition of Carpathia Hosting, Inc. (“Carpathia”) on June 16, 2015. As of December 31, 2020, these leased facilities, including those subject to finance leases, consisted of domestic data centers located in Phoenix, Arizona; San Jose, California and Ashburn, Virginia; and two international data centers located in Toronto, Canada and Amsterdam, Netherlands. As of December 31, 2020, QTS is no longer leasing space at the Secaucus, New Jersey; London, United Kingdom, and Hong Kong facilities. In addition, we significantly reduced our square footage of leased facilities in Ashburn during 2020.
These leased facilities consist of approximately 187,706 gross square feet with approximately 119,616 total operating NRSF, including approximately 59,065 raised floor operating NRSF. We are not currently redeveloping the leased facilities, we have no current plans to further build out or expand any of these leased facilities.
As of December 31, 2020, the facilities were approximately 88.4% occupied by 50 customers. The majority of the customers at these facilities are colocation and managed services customers which lease small amounts of space.
Santa Clara
Our Santa Clara, California facility was acquired in November 2007. The facility, which is owned subject to a long-term ground sublease as described below, consists of two buildings containing approximately 135,000 gross square feet with approximately 106,000 total operating NRSF, including approximately 60,000 raised floor operating NRSF. The facility is situated on a 6.5-acre site in Silicon Valley. Several Silicon Valley Power substations supply 11 MW of utility power to the facility, which is backed up by diesel generators. We believe that Silicon Valley is an ideal data center location due to the large concentration of technology companies and the high local demand for data centers and managed services.
As of December 31, 2020, the facility was approximately 89% occupied by 90 customers.
Our current under construction redevelopment plans call for the addition of approximately 4,000 raised floor operating NRSF. Longer term, we can further expand the facility by approximately 20,000 total operating NRSF, of which approximately 17,000 NRSF would be raised floor. Upon completion of the build-out of the facility, we anticipate that the facility would contain approximately 131,000 total operating NRSF, including approximately 81,000 NRSF of raised floor.
The Santa Clara facility is subject to a ground lease. We acquired a ground sublease interest in the land on which the Santa Clara facility is located in November 2007. The ground sublease expires in 2052, subject to two 10-year extension options. The annual rent payable under the ground sublease increases annually by the lesser of 6% or the increase in the Consumer Price Index for the San Francisco Bay area. The rent was recently adjusted effective October 1, 2018, and will also be adjusted in 2038, to equal one-twelfth of an amount equal to 8.5% of the product of (i) the then fair market value of the
demised premises (without taking into account the value of the improvements existing on the land) calculated on a per square foot basis, and (ii) the net square footage of the demised premises. During the term of the ground lease, we have certain obligations to facilitate the provision of job training, seminars and research opportunities for students of a community college that is adjacent to the property. We are the indirect holder of this ground sublease.
Sacramento
Our Sacramento, California facility, which we acquired in December 2012, is located 120 miles from our Santa Clara facility on a 6.8-acre site. The facility currently consists of approximately 93,000 gross square feet with approximately 81,000 total operating NRSF, including approximately 55,000 raised floor operating NRSF. The Sacramento Municipal Utility District supplies 8 MW of utility power to the facility, which is backed up by diesel generators. This facility will provide our regional customer base with business continuity services. We believe the property’s location is a valuable complement to our Santa Clara facility for our customers, as it will allow them to diversify their footprint in the California market with a single provider.
We are not currently redeveloping significant portions of the Sacramento facility.
As of December 31, 2020, the facility was approximately 46% occupied by 123 customers. The majority of the customers at this facility are colocation customers which lease small amounts of space. We are the fee simple owner of the Sacramento facility.
Miami
Our Miami, Florida facility currently consists of approximately 30,000 gross square feet with approximately 26,000 total operating NRSF, including 20,000 raised floor operating NRSF. The property sits on a 1.6-acre site located at Dolphin Center with 4 MW of utility power supplied by Florida Power & Light and backed up by diesel generators. With a wind rating of 185 miles-per-hour, the facility is built to withstand a Category 5 hurricane. Miami is a strategic location for us because it is a gateway to the South American financial markets and a transcontinental Internet hub. Other than normally recurring capital expenditures, we have no current plans to further build-out or expand the Miami facility.
As of December 31, 2020, the facility was approximately 77.6% occupied by 107 customers. We intend to continue to lease-up this property. We are the fee simple owner of the Miami facility.
Jersey City
Our Jersey City, New Jersey facility is a leased facility that consists of approximately 122,000 gross square feet with approximately 88,000 total operating NRSF, including approximately 32,000 raised floor operating NRSF. The Jersey City facility was originally leased by another party in March 2004 and we acquired the lease in October 2006 when we acquired the lessee. The lease expires in September 2026 and is subject to one five-year extension option. The facility was redeveloped in November 2006, and we subsequently leased it to service customers in New Jersey and New York. The facility is comprised of four floors of a 19 story building located on one city block in the metropolitan New York City area, six miles from Manhattan. PSE&G supplies 7 MW of utility power to the facility, which is backed up by diesel generators. The facility also contains a small amount of “Class A” office space. We believe that the location in Jersey City provides us with a valuable presence in the tri-state area, where space is highly coveted given the strong demand from financial services firms.
We are not currently redeveloping significant portions of the Jersey City facility. Longer term, we can further expand the facility by approximately 21,000 NRSF of raised floor. Upon completion of the build-out of the facility, we anticipate that the facility would contain approximately 109,000 total operating NRSF, including approximately 53,000 NRSF of raised floor.
As of December 31, 2020, the facility was approximately 76% occupied by 53 customers.
Princeton
Our Princeton, New Jersey facility, which we acquired in June 2014, is located on approximately 194 acres and consists of approximately 554,000 gross square feet, including approximately 58,000 square feet of raised floor, and 22 MW of available utility power. Concurrently with acquiring this data center we entered into a 10 year lease for the facility’s 58,000 square feet of raised floor with Atos, an international information technology services company headquartered in Bezos, France. The lease includes a 15 year renewal at the option of Atos.
We are not currently redeveloping significant portions of the Princeton facility. Longer term, we can expand the facility by approximately 372,000 total operating NRSF, of which approximately 100,000 NRSF would be raised floor. Upon completion of the build-out of the facility, we anticipate that the facility would contain approximately 544,000 total operating NRSF, including approximately 158,000 NRSF of raised floor.
As of December 31, 2020, the facility was approximately 100% occupied by 1 customer.
Piscataway
Our Piscataway, New Jersey facility, which we acquired in June 2016, currently consists of approximately 360,000 gross square feet with approximately 254,000 total operating NRSF, including approximately 118,000 raised floor operating NRSF. The property is located on a 38-acre campus and includes an on-site 111 MW substation as well as solar panels that produce approximately 2 MW of power.
The Piscataway facility is included in our development pipeline. During the year ended December 31, 2020, we placed approximately 14,000 NRSF of raised floor into service. Our current under construction redevelopment plans call for the addition of up to 36,000 total operating NRSF, including 20,000 NRSF of raised floor. We anticipate that this expansion will cost approximately $27 million in the aggregate based on current estimates (in addition to costs already incurred as of December 31, 2020). Longer term, we can further expand the facility by approximately 64,000 total operating NRSF, of which approximately 38,000 would be raised floor. Upon completion of the build-out of the facility, we anticipate that the facility would contain approximately 354,000 total operating NRSF, including approximately 176,000 NRSF of raised floor.
As of December 31, 2020, the facility was approximately 91% occupied by 85 customers.
Fort Worth
Our Fort Worth, Texas facility, which we acquired in December 2016, is located on approximately 53 acres and consists of approximately 262,000 gross square feet, including approximately 71,000 square feet of raised floor and 50 MW of available utility power. The facility is located approximately 20 miles from our Irving, Texas data center.
The Fort Worth facility is included in our development pipeline, as we plan to convert the facility into an operating data center in multiple phases. During the year ended December 31, 2020, we placed approximately 33,000 raised floor NRSF into service. Longer term, we can further expand the facility by approximately 36,000 total operating NRSF, of which approximately 9,000 would be raised floor. Upon completion of the build-out of the facility, we anticipate that the facility would contain approximately 251,000 total operating NRSF, including approximately 80,000 NRSF of raised floor.
As of December 31, 2020, the facility was approximately 67% occupied by 17 customers.
Dulles
Our Vault facility in Dulles, Virginia consists of approximately 67,000 gross square feet, including approximately 27,000 square feet of raised floor NRSF and approximately 11 MW of available utility power. The data center buildings were built from the ground up to stringent Sensitive Compartmented Information Facility standards set by the Department of Defense and National Security Agency. The Dulles campus has two data center buildings. As of December 31, 2020, we had abandoned one of the buildings and relocated customers from the smaller and older facility to the newer facility in an effort to better optimize our operating cost structure. In addition, the Dulles data center is located a quarter of a mile from our Ashburn data center.
We acquired the Dulles, Virginia campus as part of our acquisition of Carpathia on June 16, 2015. From the Carpathia acquisition date through October 5, 2017, the facility was subject to a lease financing obligation. On October 6, 2017, the Company completed the buyout of the Dulles facility. At the time of the Dulles facility purchase the lease financing obligation was approximately $17.8 million and the Company purchased the property for approximately $34.1 million cash, for a net purchase price of $16.3 million.
The Dulles facility is included in our development pipeline. Longer term, we can further expand the existing facility by approximately 18,000 NRSF of raised floor. Upon completion of the build-out of the facility, we anticipate that the facility would contain approximately 87,000 total operating NRSF, including approximately 48,000 NRSF of raised floor.
As of December 31, 2020, the facility was approximately 98% occupied by 111 customers.
Groningen, Netherlands and Eemshaven, Netherlands
In April 2019 we completed the acquisition of two data centers in the Netherlands for approximately $44 million in cash consideration, including closing costs. The two facilities, in Groningen and Eemshaven, have approximately 38,632 square feet of raised floor capacity and over 92 megawatts of built out available utility power.
The Eemshaven facility is strategically located adjacent to multiple hyperscale customer-owned data center deployments, including a 500+ megawatt data center campus operated by one of the largest hyperscale cloud providers in the world. In addition, the facility is located in close proximity to multiple transatlantic fiber cable landings providing access to multiple markets within Europe and North America.
During the year ended December 31, 2020, we completed the first phase of construction. During the year ended December 31, 2020, we opened the facility and placed approximately 16,000 NRSF of raised floor into service. Longer term, we can further expand the facility by approximately 187,000 total operating NRSF, of which approximately 104,000 would be raised floor. Upon completion of the build-out of the facility, we anticipate that the facility would contain approximately 204,000 gross square feet, including approximately 113,000 NRSF of raised floor.
As of December 31, 2020, the Eemshaven data center was operational with 6 colocation tenants and had built-out capacity representing approximately 2 gross megawatts of power and 9,000 square feet of raised floor data center space.
The Groningen facility currently has built-out capacity representing approximately 10 gross megawatts of power and 45,000 square feet of raised floor data center space. The facility represents one of the most interconnected data centers in the Netherlands market with more than 10 network providers and internet exchanges on site including NL-IX and Eurofiber. Longer term, we can further expand the facility by approximately 38,000 total operating NRSF, of which approximately 16,000 would be raised floor. Upon completion of the build-out of the facility, we anticipate that the facility would contain approximately 108,000 gross square feet, including approximately 45,000 NRSF of raised floor.
As of December 31, 2020, the Groningen data center was largely stabilized with over 30 colocation tenants and had built-out capacity representing approximately 6 gross megawatts of power and 29,000 square feet of raised floor data center space.
Phoenix
In July 2017, we completed the acquisition of approximately 84 acres of land in Phoenix, Arizona to be used for future development.
Hillsboro
In October 2017, we completed the acquisition of approximately 92 acres of land in Hillsboro, Oregon. Ultimately, we believe the 92 acre parcel of land can support approximately 250 megawatts of available utility power, 1.5 million gross square feet and 1.0 million square feet of raised floor capacity upon completion.
During the year ended December 31, 2020, we completed the first phase of construction of a mega data center. During the year ended December 31, 2020, we opened the facility and placed approximately 24,000 NRSF of raised floor into service. Our current under construction development plans call for up to approximately 3.0 gross MW of power infrastructure. We
anticipate that this expansion will cost (in addition to $12 million already incurred as of December 31, 2020) approximately $15 million in the aggregate based on current estimates.
Longer term, we can further expand the facility by approximately 111,000 total operating NRSF, of which approximately 61,000 would be raised floor. Upon completion of the build-out of the facility, we anticipate that the facility would contain approximately 158,000 gross square feet, including approximately 85,000 NRSF of raised floor.
Manassas
In March 2018, we completed the acquisition of approximately 28 acres of land in Manassas, Virginia. As of December 31, 2020, the property was under development to construct a new data center facility in Manassas (DC-2) and consisted of approximately 340,000 gross square feet with approximately 160,000 raised floor operating NRSF. The Manassas (DC-2) data center property, which is 100% owned by QTS and is separate from the aforementioned unconsolidated entity, is expected to be completed in 2021.
In August 2018, we completed the acquisition of approximately 61 acres of land in Manassas, Virginia. The land is currently being used to support the construction of a data center, which the Company completed and delivered the first three phases of six phases and has begun active construction of the fourth phase. Additionally, separate from the unconsolidated entity, during the three months ended September 30, 2018, the Company completed the acquisition of approximately 57 acres of additional land in Manassas, Virginia to be used for future development which is adjacent to the aforementioned 61 acres of land in Manassas.
On February 22, 2019, we entered into an agreement with Alinda, an infrastructure investment firm, with respect to our Manassas data center. At closing, we contributed the Manassas data center, and Alinda contributed cash, in each case, in exchange for a 50% interest in the unconsolidated entity (which includes a 50% interest in future income). The Company received approximately $53 million in cash plus a 50% equity interest in the unconsolidated entity at closing in exchange for contributing the data center to the unconsolidated entity. Under the agreement, we serve as the entity’s operating member, subject to authority and oversight of a board appointed by us and Alinda, and separately we serve as manager and developer of the facility in exchange for management and development fees. The agreement includes various transfer restrictions and rights of first offer that will allow us to repurchase Alinda’s interest should Alinda wish to exit in the future. In addition, we have agreed to provide Alinda an opportunity to invest in future similar agreements based on similar terms and a comparable capitalization rate. This agreement has been reflected as an unconsolidated entity on our reported financial statements beginning in the first quarter of 2019. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Factors That May Influence Future Results of Operations and Cash Flows-Unconsolidated Entity.”
Overland Park
The Overland Park, Kansas facility, known as the J. Williams Technology Center, is a leased facility consisting of approximately 33,000 gross square feet, with approximately 8,000 total operating NRSF, including approximately 2,500 raised floor operating NRSF. Kansas City Power & Light supplies approximately 1 MW of utility power, which is backed up by a diesel generator. The J. Williams Technology Center has housed the corporate headquarters of the Quality Group of Companies, LLC. (“QGC”) since September 2003. We lease the facility under a lease with an entity controlled by our Chairman and Chief Executive Officer, which was entered into in January 2009 and expires in December 2023. This building, while containing a small data center, is primarily utilized as our corporate headquarters. Other than normally recurring capital expenditures and expansion of our own office space at our headquarters, we have no current plans to further build-out or expand the raised floor at our Overland Park data center.
As of December 31, 2020, the facility was approximately 53% occupied by 10 customers.
Lenexa
Our Lenexa, Kansas property, which was acquired in 2004, contains approximately 35,000 gross square feet. The Lenexa property does not currently operate as a data center, nor do we intend to operate it as a data center. We have historically used this property primarily as a warehouse, but currently lease approximately 22,000 square feet to a tenant for general office use, and 12,205 square feet to a tenant as general office and warehouse space. Other than minimal normally recurring capital expenditures, we have no current plans to further build out or expand the Lenexa property.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of our business, we are subject to claims for negligence and other claims and administrative proceedings, none of which we believe are material or would be expected to have, individually or in the aggregate, a material adverse effect on us. For additional information with respect to current legal proceedings, refer to Item 8 - Note 11 - Commitments and Contingencies in “Financial Statements and Supplementary Data” included in this Annual Report.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
QTS’s common stock is listed on the New York Stock Exchange (“NYSE”) and trade under the symbol “QTS.” As of February 22, 2021, we had 35 holders of record of our common stock. This figure does not reflect the beneficial ownership of shares held in nominee name.
QTS also has 124,995 shares of Class B common stock outstanding, which are not listed on any exchange. The Class B common stock is held by one registered holder, a family limited liability company of which Chad L. Williams, our Chairman and Chief Executive Officer, is the manager.
Performance Graph
The following line graph sets forth, for the period from December 31, 2015, through December 31, 2020, a comparison of the percentage change in the cumulative total stockholder return on our common stock compared to the cumulative total return of the S&P 500 Market Index and the MSCI US REIT Index (“RMZ”). The graph assumes that $100 was invested on December 31, 2015, in shares of our common stock and each of the aforementioned indices and that all dividends were reinvested without the payment of any commissions. There can be no assurance that the performance of our shares will continue in line with the same or similar trends depicted in the graph below.
Pricing Date QTS S&P 500 MSCI US REIT
Dec 31, 2015 $ 100.00 $ 100.00 $ 100.00
Dec 31, 2016 110.06 109.54 104.22
Dec 31, 2017 120.06 130.81 105.12
Dec 31, 2018 82.13 122.65 96.03
Dec 31, 2019 119.71 158.07 116.14
Dec 31, 2020 $ 137.18 $ 182.59 $ 103.24
This performance graph shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing by us under the Securities Act of 1933, as amended, or the Securities Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Unregistered Sales of Equity Securities
QTS did not sell any equity securities during the fiscal year ended December 31, 2020 that were not registered under the Securities Act of 1933, as amended.
Repurchases of Equity Securities
During the year ended December 31, 2020, certain of our employees surrendered Class A common stock owned by them to satisfy their statutory minimum federal and state tax obligations in connection with the vesting of restricted common stock under the 2013 Equity Incentive Plan.
The following table summarizes all of these repurchases during the year ended December 31, 2020.
Period Total number of shares purchased (1)
Average price
paid per
share Total number of
shares purchased as
part of publicly
announced plans or
programs Maximum number of
shares that may yet
be purchased under the
plans or programs
January 1, 2020 through January 31, 2020 $ - $ - N/A N/A
February 1, 2020 through February 29, 2020 - - N/A N/A
March 1, 2020 through March 31, 2020 39,589 57.92 N/A N/A
April 1, 2020 through April 30, 2020 1,674 54.90 N/A N/A
May 1, 2020 through May 31, 2020 - - N/A N/A
June 1, 2020 through June 30, 2020 14,705 64.09 N/A N/A
July 1, 2020 through July 31, 2020 - - N/A N/A
August 1, 2020 through August 31, 2020 - - N/A N/A
September 1, 2020 through September 30, 2020 14,520 63.02 N/A N/A
October 1, 2020 through October 31, 2020 390 63.37 N/A N/A
November 1, 2020 through November 30, 2020 - - N/A N/A
December 1, 2020 through December 31, 2020 17,387 61.88 N/A N/A
Total $ 88,265 $ 60.53
(1)The number of shares purchased represents shares of Class A common stock surrendered by certain of our employees to satisfy federal and state tax obligations associated with the vesting of restricted common stock. With respect to these shares, the price paid per share is based on the closing price of our Class A common stock as of the date of the determination of the statutory minimum U.S. federal income tax.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. SELECTED FINANCIAL DATA
The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the notes thereto which are included elsewhere in this Form 10-K.
Year Ended December 31,
($ in thousands, except share and per share data) 2020 2019 2018 2017 2016
Statement of Operations Data
Revenues:
Rental $ 519,858 $ 465,123 $ 413,620 $ 379,787 $ 333,383
Other 19,510 15,695 36,904 66,723 68,980
Total revenues 539,368 480,818 450,524 446,510 402,363
Operating expenses:
Property operating costs 168,497 156,048 148,236 153,209 136,488
Real estate taxes and insurance 16,020 14,503 12,193 11,959 8,840
Depreciation and amortization 199,889 168,305 149,891 140,924 124,786
General and administrative 84,965 80,385 80,857 87,231 83,286
Transaction, integration and impairment costs 4,340 15,190 2,743 11,060 10,906
Restructuring - - 37,943 - -
Total operating expenses 473,711 434,431 431,863 404,383 364,306
Gain on sale of real estate, net - 14,769 - - -
Operating income 65,657 61,156 18,661 42,127 38,057
Other income and expense:
Interest income 2 111 150 67 3
Interest expense (30,724) (26,593) (28,749) (30,523) (23,159)
Debt restructuring costs (18,036) (1,523) (605) (19,992) (192)
Other income (expense) 159 (50) - - -
Equity in net loss of unconsolidated entity (2,044) (1,473) - - -
Income (loss) before taxes 15,014 31,628 (10,543) (8,321) 14,709
Tax benefit (expense) (438) 37 3,368 9,778 9,976
Net income (loss) 14,576 31,665 (7,175) 1,457 24,685
Net (income) loss attributable to noncontrolling interests 1,330 (374) 2,715 (175) (3,160)
Net income (loss) attributable to QTS Realty Trust, Inc. $ 15,906 $ 31,291 $ (4,460) $ 1,282 $ 21,525
Preferred stock dividends (28,180) (28,180) (16,666) - -
Net income (loss) attributable to common stockholders $ (12,274) $ 3,111 $ (21,126) $ 1,282 $ 21,525
Net income (loss) per share attributable to common shares:
Basic $ (0.47) $ (0.09) $ (0.44) $ 0.01 $ 0.47
Diluted (0.47) (0.09) (0.44) 0.01 0.46
Weighted average common shares outstanding:
Basic 60,717,301 54,836,801 50,432,590 48,380,964 46,205,937
Diluted 60,717,301 54,836,801 50,432,590 55,855,683 53,962,234
Dividends declared per common share $ 1.88 $ 1.76 $ 1.64 $ 1.56 $ 1.44
Year Ended December 31,
Other Data (unaudited) 2020 2019 2018 2017 2016
FFO available to common stockholders & OP unit holders (1)
$ 176,663 $ 160,476 $ 112,278 $ 125,012 $ 133,159
Operating FFO available to common stockholders & OP unit holders (1)
199,039 165,728 151,161 156,064 140,666
Recognized MRR in the period 427,957 390,267 375,515 375,086 347,331
MRR at period end (2)
38,539 34,034 31,141 31,708 30,890
NOI (3)
358,973 313,056 290,095 281,342 257,036
EBITDAre (4)
251,757 228,716 183,783 167,278 162,651
Adjusted EBITDA (4)
299,287 250,380 224,210 207,974 184,334
Year Ended December 31,
($ in thousands) 2020 2019 2018 2017 2016
Balance Sheet Data
Real estate at cost (a)
$ 4,033,136 $ 3,230,428 $ 2,812,856 $ 2,357,322 $ 1,964,857
Net investment in real estate (b)
3,330,191 2,671,868 2,345,212 1,962,499 1,647,023
Total assets 3,898,572 3,223,533 2,861,969 2,415,056 2,086,470
Total debt 1,869,493 1,453,065 1,345,117 1,229,929 965,826
(a) Reflects undepreciated cost of real estate assets, and does not include real estate intangible assets acquired in connection with acquisitions.
(b) Net investment in real estate includes building and improvements (net of accumulated depreciation), land, and construction in progress.
Year Ended December 31,
($ in thousands) 2020 2019 2018 2017 2016
Cash Flow Data
Cash flow provided by (used for):
Operating activities $ 299,715 $ 199,490 $ 191,273 $ 170,323 $ 153,794
Investing activities (817,745) (387,260) (598,553) (434,352) (452,972)
Financing activities 521,168 191,396 410,796 262,692 299,954
(1)We calculate FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT. FFO represents net income (loss) (computed in accordance with GAAP), adjusted to exclude gains (or losses) from sales of depreciable real estate related to our primary business, impairment write-downs of depreciable real estate related to our primary business, real estate-related depreciation and amortization and similar adjustments for unconsolidated entities. To the extent we incur gains or losses from the sale of assets that are incidental to our primary business, or we incur impairment write-downs associated with assets that are incidental to our primary business, we include such amounts in our calculation of FFO. Our management uses FFO as a supplemental performance measure because, in excluding real estate-related depreciation and amortization and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs. We generally calculate Operating FFO as FFO excluding certain non-routine charges and gains and losses that management believes are not indicative of the results of our operating real estate portfolio. We believe that Operating FFO provides investors with another financial measure that may facilitate comparisons of operating performance between periods and, to the extent other REITs calculate Operating FFO on a comparable basis, between REITs.
A reconciliation of net income (loss) to FFO and Operating FFO is presented below:
Year Ended December 31,
(unaudited $ in thousands) 2020 2019 2018 2017 2016
FFO
Net income (loss) $ 14,576 $ 31,665 $ (7,175) $ 1,457 $ 24,685
Equity in net loss of unconsolidated entity 2,044 1,473 - - -
Real estate depreciation and amortization 186,539 156,387 136,119 123,555 108,474
Gain on sale of real estate, net - (13,408) - - -
Impairments of depreciated property - 11,461 - - -
Pro rata share of FFO from unconsolidated entity 1,684 1,078 - - -
FFO (a)
204,843 188,656 128,944 125,012 133,159
Preferred stock dividends (28,180) (28,180) (16,666) - -
FFO available to common stockholders & OP unit holders 176,663 160,476 112,278 125,012 133,159
Debt restructuring costs 18,036 1,523 605 19,992 193
Restructuring costs - - 37,943 - -
Transaction, integration and impairment costs 4,340 3,729 2,743 11,060 10,906
Tax benefit associated with restructuring, transaction and integration costs - - (2,408) - (3,592)
Operating FFO available to common stockholders & OP unit holders (b)
$ 199,039 $ 165,728 $ 151,161 $ 156,064 $ 140,666
(a) FFO for the year ended December 31, 2019 includes a $1.4 million gain on sale of real estate related to certain assets considered incidental to our primary business and were included in the “Gain on sale of real estate, net” line item of the consolidated statements of operations. FFO for the year ended December 31, 2018 includes $15.8 million of impairment losses related to certain non-real estate product related assets that were considered incidental to our primary business and were included in the “Restructuring” line item of the consolidated statement of operations.
(b) The Company’s calculation of Operating FFO may not be comparable to Operating FFO as calculated by other REITs that do not use the same definition.
(2)We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR is also calculated to include the Company’s pro rata share of monthly contractual revenue under signed leases as of a particular date associated with unconsolidated entities, which includes revenue from the unconsolidated entity’s rental and managed services activities, but excludes the unconsolidated entity’s customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR reflects the annualized cash rental payments. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. This amount reflects the annualized cash rental payments. It does not reflect any accounting associated with any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power reimbursements. Management uses MRR and recognized MRR as supplemental performance measures because they provide useful measures of increases in contractual revenue from our customer leases.
A reconciliation of total GAAP revenues to recognized MRR in the period and MRR at period-end is presented below:
Year Ended December 31,
(unaudited $ in thousands) 2020 2019 2018 2017 2016
Recognized MRR in the period
Total period revenues (GAAP basis) $ 539,368 $ 480,818 $ 450,524 $ 446,510 $ 402,363
Less: Total period variable lease revenue from recoveries (54,337) (55,046) (45,386) (37,886) (29,271)
Total period deferred setup fees (20,330) (15,156) (12,475) (10,690) (9,172)
Total period straight line rent and other (36,744) (20,349) (17,148) (22,848) (16,589)
Recognized MRR in the period $ 427,957 $ 390,267 $ 375,515 $ 375,086 $ 347,331
MRR at period end (a)
Total period revenues (GAAP basis) $ 539,368 $ 480,818 $ 450,524 $ 446,510 $ 402,363
Less: Total revenues excluding last month (491,731) (438,810) (412,041) (406,345) (366,385)
Total revenues for last month of period 47,637 42,008 38,483 40,165 35,978
Less: Last month variable lease revenue from recoveries (4,953) (4,578) (3,822) (3,175) (3,247)
Last month deferred setup fees (2,207) (1,333) (1,015) (1,123) (968)
Last month straight line rent and other (2,349) (2,413) (2,505) (4,159) (873)
Add: Pro rata share of MRR at period end of unconsolidated entity 411 350 - - -
MRR at period end $ 38,539 $ 34,034 $ 31,141 $ 31,708 $ 30,890
(a) Does not include our booked-not-billed MRR balance, which was $12.9 million, $7.8 million, $5.2 million, $3.9 million and $3.6 million as of years ended December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(3)We calculate net operating income, or NOI, as net income (loss) (computed in accordance with GAAP), excluding: interest expense, interest income, tax expense (benefit) of taxable REIT subsidiaries, depreciation and amortization, write off of unamortized deferred financing, debt restructuring costs, gain (loss) on extinguishment of debt, transaction, integration and impairment costs, gain (loss) on sale of real estate, restructuring costs, general and administrative expenses and similar adjustments for unconsolidated entities. We allocate a management fee charge of 4% of cash revenues for all facilities (with the exception of the leased facilities acquired in 2015, which were allocated a charge of 10% of cash revenues through 2018) as a property operating cost and a corresponding reduction to general and administrative expense to cover the day-to-day administrative costs to operate our data centers. The management fee charge is reflected as a reduction to net operating income. Management uses NOI as a supplemental performance measure because it provides a useful measure of the operating results from our customer leases. In addition, we believe it is useful to investors in evaluating and comparing the operating performance of our properties and to compute the fair value of our properties.
A reconciliation of net income (loss) to NOI is presented below:
Year Ended December 31,
(unaudited $ in thousands) 2020 2019 2018 2017 2016
Net Operating Income (NOI)
Net income (loss) $ 14,576 $ 31,665 $ (7,175) $ 1,457 $ 24,685
Equity in net loss of unconsolidated entity 2,044 1,473 - - -
Interest income (2) (111) (150) (67) (3)
Interest expense 30,724 26,593 28,749 30,523 23,159
Depreciation and amortization 199,889 168,305 149,891 140,924 124,786
Debt restructuring costs 18,036 1,523 605 19,992 193
Other (income) expense (159) 50 - - -
Tax expense (benefit) 438 (37) (3,368) (9,778) (9,976)
Transaction, integration and impairment costs 4,340 15,190 2,743 11,060 10,906
General and administrative expenses 84,965 80,385 80,857 87,231 83,286
Gain on sale of real estate, net - (14,769) - - -
Restructuring - - 37,943 - -
NOI from consolidated operations (a)
$ 354,851 $ 310,267 $ 290,095 $ 281,342 $ 257,036
Pro rata share of NOI from unconsolidated entity (b)
4,122 2,789 - - -
Total NOI $ 358,973 $ 313,056 $ 290,095 $ 281,342 $ 257,036
Breakdown of NOI by facility:
Atlanta (DC - 1) data center (c)
$ 106,199 $ 96,196 $ 87,060 $ 80,648 $ 81,074
Atlanta-Suwanee data center 48,829 48,704 48,165 48,365 45,760
Irving data center 45,318 45,484 42,621 32,870 16,608
Richmond data center 26,434 32,979 33,445 40,919 30,752
Chicago data center 18,444 13,104 8,878 4,652 167
Piscataway data center 17,944 13,584 12,266 9,395 5,627
Ashburn data center 17,704 4,698 1,250 - -
Dulles data center 12,926 11,730 16,944 21,672 19,384
Princeton data center 10,149 9,977 9,729 9,598 9,544
Fort Worth data center 9,799 4,021 902 268 3
Santa Clara data center 9,352 7,549 8,344 11,378 13,703
Leased data centers (d)
7,322 8,793 9,695 12,006 24,131
Sacramento data center 5,879 6,204 7,448 6,804 7,734
Atlanta (DC - 2) data center (e)
5,216 - - - -
Netherlands data centers (f)
4,341 2,041 - - -
Hillsboro data center 270 - - - -
Other facilities (g)
8,725 5,203 3,348 2,767 2,549
NOI from consolidated operations (a)
$ 354,851 $ 310,267 $ 290,095 $ 281,342 $ 257,036
Pro rata share of NOI from unconsolidated entity (b)
4,122 2789 - - -
Total NOI $ 358,973 $ 313,056 $ 290,095 $ 281,342 $ 257,036
(a) Includes facility level general and administrative allocation charges of 4% of cash revenue for all facilities (with the exception of the leased facilities acquired in 2015, which were allocated a charge of 10% of cash revenues through 2018). These allocated charges aggregated to $19.8 million, $18.6 million, $20.8 million, $21.6 million and $20.6 million for the years ended December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(b) QTS’ pro rata share of the unconsolidated entity is 50%.
(c) This property was formerly known as “Atlanta-Metro data center” but has been renamed “Atlanta (DC-1)” to distinguish between the existing data center and the new property development.
(d) At December 31, 2020 includes 7 facilities. All facilities are leased, including one subject to a finance lease.
(e) Represents the newly developed data center building at our Atlanta, GA campus.
(f) Consists of two data centers located in Eemshaven, Netherlands and Groningen, Netherlands.
(g) Consists of Miami, FL; Lenexa, KS; and Overland Park, KS facilities.
(4)We calculate earnings before interest, taxes, depreciation and amortization for real estate (“EBITDAre”) in accordance with the standards established by the National Association of Real Estate Investment Trusts (“NAREIT”). EBITDAre represents net income (loss) (computed in accordance with GAAP) adjusted to exclude gains (or losses) from sales of depreciated property related to our primary business, income tax expense (or benefit), interest expense, depreciation and amortization, impairments of depreciated property related to our primary business, and similar adjustments for unconsolidated entities. Management uses EBITDAre as a supplemental performance measure because it provides a measure that, when compared year over year, captures the performance of our operations by removing the impact of our capital structure (primarily interest expense) and asset base charges (primarily depreciation and amortization) from our operating results.
In addition to EBITDAre, we calculate an adjusted measure of EBITDA, which we refer to as Adjusted EBITDA, as EBITDAre excluding certain non-routine charges, write off of unamortized deferred financing costs, gains (losses) on extinguishment of debt, restructuring costs, and transaction and integration costs, as well as our pro-rata share of each of those respective adjustments associated with the unconsolidated entity aggregated into one line item categorized as “Pro rata share of EBITDAre from the unconsolidated entity”. In addition, we calculate Adjusted EBITDA excluding certain non-cash recurring costs such as equity-based compensation. We believe that Adjusted EBITDA provides investors with another financial measure that may facilitate comparisons of operating performance between periods and, to the extent other REITs calculated Adjusted EBITDA on a comparable basis, between REITs.
We use EBITDAre and Adjusted EBITDA as supplemental performance measures as they provide useful measures of assessing our operating results. Other companies may not calculate EBITDAre or Adjusted EBITDA in the same manner. Accordingly, our EBITDAre and Adjusted EBITDA may not be comparable to others. EBITDAre and Adjusted EBITDA should be considered only as supplements to net income (loss) as measures of our performance and should not be used as substitutes for net income (loss), as measures of our results of operations or liquidity or as an indication of funds available to meet our cash needs, including our ability to make distributions to our stockholders.
A reconciliation of net income (loss) to EBITDAre and Adjusted EBITDA is presented below:
Year Ended December 31,
(unaudited $ in thousands) 2020 2019 2018 2017 2016
EBITDAre
Net income (loss) $ 14,576 $ 31,665 $ (7,175) $ 1,457 $ 24,685
Equity in net loss of unconsolidated entity 2,044 1,473 - - -
Interest income (2) (111) (150) (67) (3)
Interest expense 30,724 26,593 28,749 30,523 23,159
Tax expense (benefit) 438 (37) (3,368) (9,778) (9,976)
Depreciation and amortization 199,889 168,305 149,891 140,924 124,786
(Gain) Loss on disposition of depreciated property - (13,408) 6,994 - -
Impairments of depreciated property - 11,461 8,842 4,219 -
Pro rata share of EBITDAre from unconsolidated entity
4,088 2,775 - - -
EBITDAre (a)
251,757 228,716 183,783 167,278 162,651
Adjusted EBITDA
Debt restructuring costs 18,036 1,523 605 19,992 193
Equity-based compensation expense 25,133 16,412 14,972 13,863 10,584
Restructuring costs - - 22,107 - -
Transaction, integration and implementation costs 4,361 3,729 2,743 6,841 10,906
Adjusted EBITDA $ 299,287 $ 250,380 $ 224,210 $ 207,974 $ 184,334
(a) EBITDAre for the year ended December 31, 2019 includes a $1.4 million gain on sale of real estate related to certain assets considered incidental to our primary business and were included in the “Gain on sale of real estate, net” line item of the consolidated statement of operations.
For more information on our use of Non-GAAP Financial Measures see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures.”

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis covers the financial condition and results of operations of QTS Realty Trust, Inc. You should read the following discussion and analysis in conjunction with QTS’s accompanying consolidated financial statements and related notes and “Risk Factors” contained elsewhere in this Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-K, including information with respect to our business and growth strategies, our expectations regarding the future performance of our business and the other non-historical statements contained herein are forward-looking statements. See “Special Note Regarding Forward-Looking Statements.”
Overview
QTS is a leading provider of data center solutions to the world’s largest and most sophisticated hyperscale technology companies, enterprises and government agencies. Through our technology-enabled platform, delivered across mega scale data center infrastructure, we offer a comprehensive portfolio of secure and compliant IT solutions. Our data centers are facilities that power and support our customers’ IT infrastructure equipment and provide seamless access and connectivity to a range of communications and IT services providers. Across our broad footprint of strategically-located data centers, we provide flexible scalable, and secure IT solutions including data center space, power and cooling, connectivity and value-add managed services for more than 1,200 customers in the financial services, healthcare, retail, government, technology and various other industries. We build out our data center facilities depending on the needs of our customers to accommodate both multi-tenant environments (hybrid colocation) and customers that require significant amounts of space and power (hyperscale), including federal customers. We believe that we own and operate one of the largest portfolios of multi-tenant data centers in the United States, as measured by gross square footage, and have the capacity to significantly expand our sellable data center raised floor space without constructing or acquiring any new buildings. In addition, we own approximately 785 acres of land that is available at our data center properties that provides us with the opportunity to significantly expand our capacity to further support future demand from current and new potential customers.
As of December 31, 2020, we operated a portfolio of 28 data center properties located throughout the United States, Canada and Europe. Within the United States, our data centers are concentrated in the markets which we believe offer the highest growth opportunities. Our data centers are highly specialized, mission-critical facilities utilized by our customers to store, power and cool the server, storage, and networking equipment that support their most critical business systems and processes. We believe that our data centers are best-in-class and engineered to adhere to the highest specifications commercially available to customers, providing fully redundant, high-density power and cooling sufficient to meet the needs of the largest companies and organizations in the world. We have demonstrated a strong operating track record of “five-nines” (99.999%) reliability since QTS’ inception.
QTS is a Maryland corporation formed on May 17, 2013 and is the sole general partner and majority owner of QualityTech, LP, our operating partnership (the “Operating Partnership”). Substantially all of our assets are held by, and all of our operations are conducted through, the Operating Partnership. QTS’ Class A common stock trades on the New York Stock Exchange under the ticker symbol “QTS.”
We believe that QTS has operated and has been organized in conformity with the requirements for qualification and taxation as a REIT commencing with its taxable year ended December 31, 2013. Our qualification as a REIT, and maintenance of such qualification, depends upon our ability to meet, on a continuing basis, various complex requirements under the Internal Revenue Code of 1986, as amended (the “Code”) relating to, among other things, the sources of our gross income, the composition and values of our assets, our distributions to our stockholders and the concentration of ownership of our equity shares.
The COVID-19 Pandemic
We continue to actively monitor developments with respect to COVID-19 and have taken numerous actions based on corporate policies specifically focusing on the safety and wellness of our customers, partners, and employees, as well as providing continuous and resilient services. Although the COVID-19 pandemic has caused significant disruptions to the United States and global economy and has contributed to significant volatility in financial markets, as of December 31, 2020, these developments have not had a known material adverse effect on our business. As of December 31, 2020, each of our data centers in North America and Europe are fully operational and operating in accordance with our business continuity plans. Across each of the respective jurisdictions in which we operate, our business has been deemed an essential operation, which
has allowed us to remain fully staffed with critical personnel in place to continue to provide service and support for our customers.
In the first half of 2020, we experienced a modest increase in customer requests for extended payment terms, primarily concentrated in the retail, oil and gas, hospitality and transportation customer verticals, with these customers representing approximately 5% of our revenue. During the remainder of 2020, the level of customers requesting such terms decreased to a de minimis amount and the majority of customers who had previously asked for extended payment terms have since resumed payments in accordance with original contract terms. Overall, we continue to see cash collections and receivables trending toward a level that is closer to our historical levels.
In addition, in the first half of 2020, we experienced modest delays in construction activity in a few of our markets primarily as a result of availability of contractors and slower permitting. Those delays have been remediated and through the date of this report, our commitments to customers remain on track and we do not currently anticipate any meaningful delays in our development activity associated with our booked-not-billed backlog assuming current trends continue.
The extent to which COVID-19 impacts our and our customers’ operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the pandemic, new information that may emerge concerning the severity, variants or mutations of COVID-19, vaccine efficacy and rollout and other actions taken to contain COVID-19 or treat its impact, among others. The COVID-19 pandemic presents material uncertainty and risk with respect to our business, financial performance, and results of operations and also may exacerbate many of the risks identified under the section entitled “Risk Factors”. For a further discussion of the risks related to the COVID-19 pandemic, see “Item 1A Risk Factors.”
Our Customer Base
Our data center facilities are designed with the flexibility to support a diverse set of solutions and customers. Our customer base is comprised of more than 1,200 different companies of all sizes representing an array of industries, each with unique and varied business models and needs. We serve Fortune 1000 companies as well as small and medium-sized businesses, or SMBs, including financial institutions, healthcare companies, retail companies, government agencies, communications service providers, software companies and global Internet companies.
We have customers that range from large enterprise and technology companies with significant IT expertise and data center requirements, including financial institutions, “Big Four” accounting firms and the world’s largest global Internet and cloud companies, to major healthcare, telecommunications and software and web-based companies.
As a result of our diverse customer base, customer concentration in our portfolio is limited. As of December 31, 2020, only five of our more than 1,200 customers individually accounted for more than 3% of our monthly recurring revenue (“MRR”) (as defined below), with the largest customer accounting for approximately 13.1% of our MRR and the next largest customer accounting for only 5.4% of our MRR.
Our Portfolio
As of December 31, 2020, including 100% of the unconsolidated entity with which we are affiliated, we operated 28 data center properties located throughout the United States, Canada and Europe, containing an aggregate of approximately 7.8 million gross square feet of space, including approximately 3.5 million “basis-of-design” raised floor square feet (approximately 96.9% of which is wholly owned by us including our data center in Santa Clara which is subject to a long-term ground lease), which represents the total sellable data center raised floor potential of our existing data center facilities. This reflects the maximum amount of space in our existing buildings that could be leased following full build-out, depending on the space and power configuration that we deploy. As of December 31, 2020, this space included approximately 2.0 million raised floor operating net rentable square feet, or NRSF, plus approximately 1.6 million square feet of additional raised floor available for development, of which approximately 0.3 million raised floor square feet is expected to become operational by December 31, 2021. Of the total 1.6 million raised floor square feet available for development, approximately 0.2 million square feet was related to customer leases which had been executed as of December 31, 2020 but not yet commenced. Our facilities collectively have access to approximately 1,050 megawatts (“MW”) of available utility power. Access to power typically is the most limiting and expensive component in developing a data center and, as such, we believe our significant access to power represents an important competitive advantage.
Key Operating Metrics
The following sets forth definitions for our key operating metrics. These metrics may differ from similar definitions used by other companies.
Monthly Recurring Revenue (“MRR”). We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted. MRR does not reflect any accounting associated with any free rent, rent abatements or future scheduled rent increases and also excludes operating expense and power reimbursements.
Annualized Rent. We define annualized rent as MRR multiplied by 12.
Rental Churn. We define rental churn as the MRR lost in the period from a customer intending to fully exit our platform in the near term compared to the total MRR at the beginning of the period.
Leasable Raised Floor. We define leasable raised floor as the amount of raised floor square footage that we have leased plus the available capacity of raised floor square footage that is in a leasable format as of a particular date and according to a particular product configuration. The amount of our leasable raised floor may change even without completion of new development projects due to changes in our configuration of space.
Percentage (%) Occupied and Billing Raised Floor. We define percentage occupied and billing raised floor as the square footage that is subject to a signed lease for which billing has commenced as of a particular date compared to leasable raised floor based on the current configuration of the properties as of that date, expressed as a percentage.
Booked-not-Billed. We define booked-not-billed as our customer leases that have been signed, but for which lease payments have not yet commenced.
Factors That May Influence Future Results of Operations and Cash Flows
Revenue. Our revenue growth will depend on our ability to maintain the historical occupancy rates of leasable raised floor, lease currently available space, lease new capacity that becomes available as a result of our development and redevelopment activities, attract new customers and continue to meet the ongoing technological requirements of our customers. As of December 31, 2020, we had in place customer leases generating revenue for approximately 93% of our leasable raised floor. Our ability to grow revenue also will be affected by our ability to maintain or increase rental and managed services rates at our properties. The impact of the COVID-19 pandemic, including, but not limited to, the risk of business and/or operational disruptions, disruption of our customers’ businesses that could affect their ability to make rental payments to us, supply chain disruptions and delays in the construction or development of our data centers, future economic downturns, regional downturns or downturns in the technology industry, new technological developments, evolving industry demands and other similar factors could impair our ability to attract new customers or renew existing customers’ leases on favorable terms, or at all, and could adversely affect our customers’ ability to meet their obligations to us. For example, in the first half of 2020 in connection with the COVID-19 pandemic, we experienced a modest increase in customer requests for payment relief. In response to these customer requests, although we have not reduced aggregate future payments, we have in certain circumstances provided additional flexibility in the form of extended payment terms. During the remainder of 2020 and through the date of this report, the quantity of additional customer requests for extended payment terms decreased to a de minimus amount and the majority of customers who had previously asked for extended payment terms have since resumed payments in accordance with original contract terms. Although, as of the date of this report, these requests have not had an adverse effect on our business, these or other negative trends in one or more of these or other factors described above could adversely affect our revenue in future periods, which would impact our results of operations and cash flows. We also at times may elect to reclaim space from customers in a negotiated transaction where we believe that we can redevelop and/or re-lease that space at higher rates, which may cause a decrease in revenue until the space is re-leased.
Leasing Arrangements. As of December 31, 2020, approximately 51% of our MRR was attributable to the metered power model. Under the metered power model, the customer pays us a fixed monthly rent amount, plus reimbursement of certain other operating costs, including actual costs of sub-metered electricity used to power its data center equipment and an estimate of costs for electricity used to power supporting infrastructure for the data center, expressed as a factor of the
customer’s actual electricity usage. Fluctuations in our customers’ utilization of power and the supplier pricing of power do not significantly impact our results of operations or cash flows under the metered power model. These leases generally have a minimum term of five years. As of December 31, 2020, the remaining approximately 49% of our MRR was attributable to the gross lease or managed service model. Under this model, the customer pays us a fixed amount on a monthly basis, and does not separately reimburse us for operating costs, including utilities, maintenance, repair, property taxes and insurance, as reimbursement for these costs is factored into MRR. However, if customers incur more utility costs than their leases permit, we are able to charge these customers for overages. For leases under the gross lease or managed service model, fluctuations in our customers’ utilization of power and the prices our utility providers charge us will impact our results of operations and cash flows. Our gross leases and managed services contracts generally have a term of three years or less.
Scheduled Lease Expirations. Our ability to minimize rental churn and customer downgrades at renewal, combined with our ability to renew, lease and re-lease expiring space, will impact our results of operations and cash flows. Leases which have commenced billing representing approximately 24% and 25% of our total leased raised floor are scheduled to expire during the years ending December 31, 2021 (including all month-to-month leases) and 2022, respectively. These leases also represented approximately 33% and 27%, respectively, of our annualized rent as of December 31, 2020. Given that our average rent for larger contracts tend to be at or below market rent at expiration, as a general matter, based on current market conditions, we expect that expiring rents will generally be at or below the then-current market rents.
Acquisitions, Development, and Financing. Our revenue growth also will depend on our ability to acquire and redevelop and/or construct and subsequently lease data center space at favorable rates. We generally fund the cost of data center acquisition, construction and/or redevelopment from our net cash provided by operations, revolving credit facility, other unsecured and secured borrowings, joint ventures and/or the issuance of additional equity. We believe that we have sufficient access to capital from our current cash and cash equivalents, borrowings under our revolving credit facility and forward equity transactions to fund our development that is under construction. In the first half of 2020 in connection with the COVID-19 pandemic, we experienced modest delays in construction activity in a few of our markets, primarily as a result of availability of contractors and slower permitting as more fully described under the caption “The COVID-19 Pandemic.” During the remainder of 2020 and through the date of this report, we are pleased to report that our commitments to customers remain on track and we do not currently anticipate any meaningful delays in our development activity associated with our booked-not-billed backlog assuming current trends continue.
Unconsolidated Entity. On February 22, 2019, we entered into an agreement with Alinda, an infrastructure investment firm, with respect to a recently constructed data center in Manassas. At closing, we contributed cash and our Manassas data center (a hyperscale data center under development in Manassas, Virginia), and Alinda contributed cash, in each case in exchange for a 50% interest in the unconsolidated entity. The Manassas data center, which is currently leased to a global cloud-based software company pursuant to a 10-year lease agreement, was contributed at an expected stabilized value upon completion of approximately $240 million. At the closing, we received approximately $53 million in net proceeds, which was funded from the cash contributed by Alinda and also borrowings under a $164.5 million secured credit facility entered into by the unconsolidated entity at closing that carries a rate of LIBOR plus 2.00% to 2.25% depending on the existing leverage ratio. We used these distributions to pay down our revolving credit facility and for general corporate purposes. Under the agreement, we will receive additional distributions in the future as and when we complete development of each phase of the Manassas data center and place it into service, which allows us to receive distributions for Alinda’s share of the unconsolidated entity based on the expected full stabilization of the asset. These distributions will be based on a 6.75% capitalization rate for each phase delivered during the first three years of the agreement. Under the agreement, we serve as the unconsolidated entity’s operating member, subject to authority and oversight of a board appointed by Alinda and us, and separately we serve as manager and developer of the facility in exchange for management and development fees. The agreement includes various transfer restrictions and rights of first offer that will allow us to repurchase Alinda’s interest should Alinda wish to exit in the future. In addition, we have agreed to provide Alinda an opportunity to invest in future similar entities based on similar terms and at a comparable capitalization rate. This agreement has been reflected as an unconsolidated entity on our reported financial statements beginning in the first quarter of 2019.
Operating Expenses. Our operating expenses generally consist of direct personnel costs, utilities, property and ad valorem taxes, insurance and site maintenance costs and rental expenses on our ground and building leases. In particular, our buildings require significant power to support the data center operations conducted in them. Although a significant portion of our long-term leases - leases with a term greater than three years - contain reimbursements for certain operating expenses, we will not in all instances be reimbursed for all of the property operating expenses we incur. Increases or decreases in our operating expenses will impact our results of operations and cash flows and we expect to incur additional operating expenses as we continue to expand. Although, as of the date of this report, expense impacts related to the COVID-19 pandemic have not had
an adverse effect on our business, these or other negative trends in one or more of these or other factors described above could adversely affect our operating expenses in future periods, which would impact our results of operations and cash flows. In addition, in February 2021, the State of Texas was subject to an extensive winter storm which caused significant disruptions in the Texas power grid. Our Irving and Fort Worth data centers operated uninterrupted throughout the impacted period. We are evaluating the impact of the disruptions to the Texas power grid but do not believe the events will have a material adverse impact on our financial statements because we have utilized power purchase agreements to hedge our utility costs in Texas.
General Leasing Activity
Information is provided in the tables below for both our leasing activity as well as booked-not-billed balances.
For new/modified leases signed, “Incremental Annualized Rent, Net of Downgrades” reflect net incremental MRR signed during the period for purposes of tracking incremental revenue contribution. The amounts include renewals when there was a change in square footage rented, but exclude renewals where square footage remained consistent before and after renewal. (See “Renewed Leases” table below for such renewals.) Annualized rent per leased square foot is computed using the total MRR associated with all new and modified leases for the respective periods.
In regard to renewed leases signed, consistent with our strategy and business model, the renewal rates below reflect total MRR per square foot including all subscribed services. For comparability, we include only those leases where the square footage remained consistent before and after renewal. All customers with space changes are incorporated into new/modified leasing statistics and rates.
We define booked-not-billed as our customer leases that have been signed, but for which lease payments have not yet commenced.
The following leasing and booked-not-billed statistics include results of the consolidated business as well as QTS’ 50% share of revenue from the unconsolidated entity, if any.
Period Number of
Leases Annualized rent (1)
per leased sq ft
Incremental
Annualized Rent (1), Net
of Downgrades
New/modified leases signed Three Months Ended December 31, 2020 519 $ 452 $ 40,272,870
Year Ended December 31, 2020 2,044 $ 436 $ 109,152,943
Period Number of
Renewed
Leases Annualized rent (1)
per leased sq ft
Annualized Rent (2)
Rent Change
Renewed Leases (2)
Three Months Ended December 31, 2020 99 $ 553 $ 22,462,764 (1.5) %
Year Ended December 31, 2020 380 $ 586 $ 67,827,762 1.4 %
(1)We define annualized rent as MRR as of December 31, 2020, multiplied by 12.
(2)We define renewals as leases where the customer retains the same amount of space before and after renewals, which facilitates rate comparability.
The following table outlines the booked-not-billed balance as of December 31, 2020 and how that is expected to affect revenue in 2021 and subsequent years:
Booked-not-billed ("BNB") (1)
2021 2022 Thereafter Total
MRR $ 7,111,970 $ 1,959,370 $ 3,794,106 $ 12,865,446
Incremental revenue (2)
$ 45,917,789 $ 17,166,937 $ 45,529,272
Annualized revenue (3) (4)
$ 85,343,640 $ 23,512,440 $ 45,529,272 $ 154,385,352
(1)Includes our consolidated booked-not-billed balance in addition to booked-not-billed revenue associated with the unconsolidated entity at QTS’ pro rata share of the booked-not-billed revenue. Of the $154.4 million annualized booked-not-billed revenue, approximately $2.8 million related to QTS’ pro rata share of booked-not-billed revenue associated with the unconsolidated entity.
(2)Incremental revenue represents the expected amount of recognized MRR for the business in the period based on when the booked-not-billed leases commence throughout the period.
(3)Annualized revenue represents the booked-not-billed MRR multiplied by 12, demonstrating how much recognized MRR might have been recognized if the booked-not-billed leases commencing in the period were in place for an entire year.
(4)As of December 31, 2020, adjusting booked-not-billed revenue for the effects of revenue which had begun recognition via straight line rent, our annualized booked-not-billed balance was $87.1 million, of which $49.0 million was attributable to 2021, $14.3 million was attributable to 2022, and $23.8 million was attributable to years thereafter.
We estimate the remaining cost to provide the space, power, connectivity and other services to the customer contracts which had not billed as of December 31, 2020 to be approximately $520.3 million. This estimate generally includes customers with newly contracted space of more than 3,300 square feet of raised floor space. The space, power, connectivity and other services provided to customers that contract for smaller amounts of space is generally provided by utilizing existing space which was previously developed.
Results of Operations
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Changes in revenues and expenses for the year ended December 31, 2020 compared to the year ended December 31, 2019 are summarized below (in thousands):
Year Ended December 31,
2020 2019 $ Change % Change
Revenues:
Rental $ 519,858 $ 465,123 $ 54,735 12 %
Other 19,510 15,695 3,815 24 %
Total revenues 539,368 480,818 58,550 12 %
Operating expenses:
Property operating costs 168,497 156,048 12,449 8 %
Real estate taxes and insurance 16,020 14,503 1,517 10 %
Depreciation and amortization 199,889 168,305 31,584 19 %
General and administrative 84,965 80,385 4,580 6 %
Transaction, integration, and impairment costs 4,340 15,190 (10,850) (71) %
Total operating expenses 473,711 434,431 39,280 9 %
Gain on sale of real estate, net - 14,769 (14,769) (100) %
Operating income 65,657 61,156 4,501 7 %
Other income and expense:
Interest income 2 111 (109) (98) %
Interest expense (30,724) (26,593) 4,131 16 %
Debt restructuring costs (18,036) (1,523) 16,513 1084 %
Other income (expense) 159 (50) 209 (418) %
Equity in net loss of unconsolidated entity (2,044) (1,473) 571 39 %
Income before taxes 15,014 31,628 (16,614) (53) %
Tax benefit (expense) (438) 37 (475) 1283 %
Net income $ 14,576 $ 31,665 $ (17,089) (54) %
Revenues. Total revenues for the year ended December 31, 2020 were $539.4 million compared to $480.8 million for the year ended December 31, 2019. The increase of $58.5 million, or 12%, was largely attributable to growth in our hyperscale and hybrid colocation offerings, primarily through increases in revenues at our Ashburn (DC-1), Fort Worth, Chicago, Atlanta (DC-1) and Atlanta (DC-2) data centers, partially offset by revenue reductions in Richmond and various leased facilities which were generally associated with our exit from those leased facilities.
Property Operating Costs. Property operating costs for the year ended December 31, 2020 were $168.5 million compared to property operating costs of $156.0 million for the year ended December 31, 2019, an increase of $12.4 million, or 8%. The breakdown of our property operating costs is summarized in the table below (in thousands):
Year Ended December 31,
2020 2019 $ Change % Change
Property operating costs:
Direct payroll $ 27,446 $ 23,618 $ 3,828 16 %
Rent 10,833 12,882 (2,049) (16) %
Repairs and maintenance 14,271 12,125 2,146 18 %
Utilities 69,792 68,292 1,500 2 %
Management fee allocation 19,796 18,571 1,225 7 %
Other 26,359 20,560 5,799 28 %
Total property operating costs $ 168,497 $ 156,048 $ 12,449 8 %
The increase in total property operating costs was primarily due to increased direct payroll costs, utilities expense and repairs and maintenance expense resulting from ongoing company growth, an increase in bad debt expense which was partially attributable to the risk of a loss across our portfolio of lease receivables primarily related to customers experiencing business disruptions due to COVID-19 (which is included in the “Other” line item of the property operating costs table above) as well as an increase in miscellaneous expenses primarily attributable to an adjustment to prior years' personal property taxes at our Atlanta-Suwanee facility. Offsetting these increases was a reduction in rent expense primarily related to our exit of portions of leased facilities.
Real Estate Taxes and Insurance. Real estate taxes and insurance for the year ended December 31, 2020 were $16.0 million compared to $14.5 million for the year ended December 31, 2019. The increase of $1.5 million, or 10%, was primarily attributable to an increase in real estate taxes at our Ashburn (DC - 1), Fort Worth and Chicago facilities.
Depreciation and Amortization. Depreciation and amortization for the year ended December 31, 2020 was $199.9 million compared to $168.3 million for the year ended December 31, 2019. The increase of $31.6 million, or 19%, was primarily due to additional depreciation expense relating to an increase in assets placed in service at our Ashburn (DC - 1), Chicago, Fort Worth, Atlanta (DC - 1) and Atlanta (DC - 2) facilities, partially offset by a decrease in depreciation expense at our Richmond facility, as we took a portion of the facility out of service to repurpose the space for re-lease, and Dulles facilities due to exiting one of our Dulles facilities.
General and Administrative Expenses. General and administrative expenses were $85.0 million for the year ended December 31, 2020 compared to general and administrative expenses of $80.4 million for the year ended December 31, 2019, an increase of $4.6 million, or 6%. The increase was primarily attributable to an increase in total compensation expense, the majority of which related to increased equity-based compensation expense associated with the growth of the Company and anticipated achievement of certain performance metrics, partially offset by a reduction in employee travel-related expenses primarily associated with reduced travel as a result of the COVID-19 pandemic.
Transaction, Integration & Impairment Costs. Transaction, integration and impairment costs were $4.3 million for the year ended December 31, 2020, compared to $15.2 million for the year ended December 31, 2019, a decrease of $10.9 million or 71%. The decrease was primarily associated with a $11.5 million impairment loss recognized in 2019 related to the write-down of certain data center assets and equipment in one of our Dulles, Virginia data centers. The remaining costs for the years ended December 31, 2020 and December 31, 2019 are primarily attributable to costs related to the examination of potential acquisitions.
Gain on sale of real estate, net. The gain on sale of real estate net incurred during the year ended December 31, 2019 primarily relates to a $13.4 million net gain realized upon sale of the Manassas facility to the unconsolidated entity which represents the fair value of cash and noncash consideration received in the sale transaction, net of costs directly related to the sale in excess of the carrying amounts of the assets. In addition, during the year ended December 31, 2019, we recognized a $1.4 million gain on sale of certain ancillary land improvements near our Atlanta (DC-1) facility.
Interest Expense. Interest expense for the year ended December 31, 2020 was $30.7 million compared to $26.6 million for the year ended December 31, 2019. The increase of $4.1 million, or 16%, was primarily attributable to an increase in our average total debt balance compared to the prior period as well as a lower level of capitalized interest during the current period, partially offset by a reduction in interest rates.
Debt Restructuring Costs. Debt restructuring costs for the year ended December 31, 2020 were $18.0 million compared to debt restructuring costs of $1.5 million for the year ended December 31, 2019. The increase in debt restructuring costs of $16.5 million was primarily attributable to the replacement of the 4.750% Senior Notes due 2025 with the 3.875% Senior Notes due 2028 during the year ended December 31, 2020 (which included $14.3 million related to an early repayment penalty and $3.7 million related to the write-off of unamortized deferred financing costs), compared to debt restructuring expenses of $1.5 million recognized in the fourth quarter of 2019 associated with the extension and expansion of our unsecured credit facility.
Other Income (Expense). Other income (expense) represents the impact of foreign currency exchange rate fluctuations on the value of investments in foreign subsidiaries whose functional currencies are other than the U.S. Dollar. We recognized $0.2 million of foreign currency gain related to our investment in the Netherlands facilities during the year ended December 31, 2020. Prior to February 2020, gains or losses from foreign currency transactions were included in determining net income (loss). In February 2020, we entered into a net investment hedge which resulted in gains or losses subsequently being recognized in Other Comprehensive Income (Loss).
Equity in net income (loss) of unconsolidated entity. This represents equity in earnings (loss) of our unconsolidated entity formed during the first quarter of 2019 that owns our Manassas (DC-1) data center. Equity in net loss was $2.0 million for the year ended December 31, 2020, which remained consistent with net loss of $1.5 million for the year ended December 31, 2019.
Tax Benefit (Expense) of Taxable REIT Subsidiaries. Tax expense of taxable REIT subsidiaries for the year ended December 31, 2020 was $0.4 million which remained consistent compared to less than $0.1 million of tax benefit for the year ended December 31, 2019.
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
For a discussion comparing the Company’s financial condition and results of operations for the year ended December 31, 2019 compared to the year ended December 31, 2018 refer to subsection “Results of Operations - Year Ended December 31, 2019 Compared to Year Ended December 31, 2018” of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2019, which is incorporated by reference herein. This discussion should be read in conjunction with Item 8. Financial Statements and Supplementary Data.
Non-GAAP Financial Measures
We consider the following non-GAAP financial measures to be useful to investors as key supplemental measures of our performance: (1) FFO; (2) Operating FFO; (3) Adjusted Operating FFO; (4) MRR; (5) NOI; (6) EBITDAre; and (7) Adjusted EBITDA. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income or loss and cash flows from operating activities as a measure of our operating performance. FFO, Operating FFO, Adjusted Operating FFO, MRR, NOI, EBITDAre and Adjusted EBITDA, as calculated by us, may not be comparable to similarly titled measures as reported by other companies that do not use the same definition or implementation guidelines or interpret the standards differently from us.
We do not, nor do we suggest investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information. We believe the presentation of non-GAAP financial measures provide meaningful supplemental information to both management and investors that is indicative of our operations. We have included a reconciliation of this additional information to the most comparable GAAP measure below.
FFO, Operating FFO and Adjusted Operating FFO
We consider funds from operations (“FFO”) to be a supplemental measure of our performance which should be considered along with, but not as an alternative to, net income (loss) and cash provided by operating activities as a measure of operating performance. We calculate FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts (“NAREIT”). FFO represents net income (loss) (computed in accordance with GAAP), adjusted to exclude gains (or losses) from sales of depreciable real estate related to our primary business, impairment write-downs of depreciable real estate related to our primary business, real estate-related depreciation and amortization, and similar adjustments for unconsolidated entities. To the extent we incur gains or losses from the sale of assets that are incidental to our primary business, or incur impairment write-downs associated with assets that are incidental to our primary business, we include such amounts in our calculation of FFO. Our management uses FFO as a supplemental operating performance measure because, in excluding real estate-related depreciation and amortization, impairment write-downs of depreciable real estate and gains and losses from property dispositions related to our primary business, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs.
Due to the volatility and nature of certain significant charges and gains recorded in our operating results that management believes are not reflective of our operating performance, management computes an adjusted measure of FFO, which we refer to as Operating funds from operations (“Operating FFO”). Operating FFO is a non-GAAP measure that is used as a supplemental operating measure and to provide additional information to users of the financial statements. We generally calculate Operating FFO as FFO excluding certain non-routine charges and gains and losses that management believes are not indicative of the results of our operating real estate portfolio. We believe that Operating FFO provides investors with another financial measure that may facilitate comparisons of operating performance between periods and, to the extent they calculate Operating FFO on a comparable basis, between REITs.
Adjusted Operating Funds From Operations (“Adjusted Operating FFO”) is a non-GAAP measure that is used as a supplemental operating measure and to provide additional information to users of the financial statements. We calculate Adjusted Operating FFO by adding or subtracting from Operating FFO items such as: maintenance capital investment, paid leasing commissions, amortization of deferred financing costs, non-real estate depreciation and amortization, straight line rent adjustments, income taxes, equity-based compensation and similar adjustments for unconsolidated entities.
We offer these measures because we recognize that FFO, Operating FFO and Adjusted Operating FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However, because FFO, Operating FFO and Adjusted Operating FFO exclude real estate depreciation and amortization and capture neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our financial condition, cash flows and results of operations, the utility of FFO, Operating FFO and Adjusted Operating FFO as measures of our operating performance is limited. Our calculation of FFO may not be comparable to measures calculated by other companies who do not use the NAREIT definition of FFO or do not calculate FFO in accordance with NAREIT guidance. In addition, our calculations of FFO, Operating FFO and Adjusted Operating FFO are not necessarily comparable to similarly titled measures as calculated by other REITs that do not use the same definition or implementation guidelines or interpret the standards differently from us. FFO, Operating FFO and Adjusted Operating FFO are non-GAAP measures and should not be considered a measure of our results of operations or liquidity or as a substitute for, or an alternative to, net income (loss), cash provided by operating activities or any other performance measure determined in accordance with GAAP, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions to our stockholders.
A reconciliation of net income (loss) to FFO, Operating FFO and Adjusted Operating FFO is presented below:
Year Ended December 31,
(unaudited $ in thousands) 2020 2019 2018
FFO
Net income (loss) $ 14,576 $ 31,665 $ (7,175)
Equity in net loss of unconsolidated entity 2,044 1,473 -
Real estate depreciation and amortization 186,539 156,387 136,119
Gain on sale of real estate, net - (13,408) -
Impairments of depreciated property - 11,461 -
Pro rata share of FFO from unconsolidated entity 1,684 1,078 -
FFO (1)
204,843 188,656 128,944
Preferred stock dividends (28,180) (28,180) (16,666)
FFO available to common stockholders & OP unit holders 176,663 160,476 112,278
Debt restructuring costs 18,036 1,523 605
Restructuring costs - - 37,943
Transaction and integration costs 4,340 3,729 2,743
Tax benefit associated with restructuring, transaction and integration costs - - (2,408)
Operating FFO available to common stockholders & OP unit holders (2)
199,039 165,728 151,161
Maintenance capital expenditures (10,150) (4,233) (6,662)
Leasing commissions paid (36,744) (31,102) (24,246)
Amortization of deferred financing costs 4,148 3,917 3,856
Non real estate depreciation and amortization 13,350 11,918 13,772
Straight line rent revenue and expense and other (25,401) (7,922) (6,770)
Tax expense (benefit) from operating results 438 (37) (960)
Equity-based compensation expense 25,133 16,412 14,972
Adjustments for unconsolidated entity (304) 118 -
Adjusted Operating FFO available to common stockholders & OP unit holders (2)
$ 169,509 $ 154,799 $ 145,123
(1)FFO for the year ended December 31, 2019 includes a $1.4 million gain on sale of real estate related to certain assets considered incidental to our primary business and were included in the “Gain on sale of real estate, net” line item of the consolidated statements of operations. FFO for the year ended December 31, 2018 includes $15.8 million of impairment losses related to certain non-real estate product related assets that were considered incidental to our primary business and were included in the “Restructuring” line item of the consolidated statement of operations. No gains, losses or impairment write-downs associated with assets incidental to our primary business were included in FFO for the year ended December 31, 2020.
(2)Our calculations of Operating FFO and Adjusted Operating FFO may not be comparable to Operating FFO and Adjusted Operating FFO as calculated by other REITs that do not use the same definition.
Monthly Recurring Revenue (MRR) and Recognized MRR
We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR is also calculated to include our pro rata share of monthly contractual revenue under signed leases as of a particular date associated with unconsolidated entities, which includes revenue from the unconsolidated entity’s rental and managed services activities, but excludes the unconsolidated entity’s customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR reflects the annualized cash rental payments. It does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted.
Separately, we calculate recognized MRR as the recurring revenue recognized during a given period, which includes revenue from our rental and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues.
Management uses MRR and recognized MRR as supplemental performance measures because they provide useful measures of increases in contractual revenue from our customer leases and customer leases attributable to our business. MRR and recognized MRR should not be viewed by investors as alternatives to actual monthly revenue, as determined in accordance with GAAP. Other companies may not calculate MRR or recognized MRR in the same manner. Accordingly, our MRR and recognized MRR may not be comparable to other companies’ MRR and recognized MRR. MRR and recognized MRR should be considered only as supplements to total revenues as a measure of our performance. MRR and recognized MRR should not be used as measures of our results of operations or liquidity, nor is it indicative of funds available to meet our cash needs, including our ability to make distributions to our stockholders.
A reconciliation of total GAAP revenues to recognized MRR in the period and MRR at period end is presented below:
Year Ended December 31,
(unaudited $ in thousands) 2020 2019 2018
Recognized MRR in the period
Total period revenues (GAAP basis) $ 539,368 $ 480,818 $ 450,524
Less: Total period variable lease revenue from recoveries (54,337) (55,046) (45,386)
Total period deferred setup fees (20,330) (15,156) (12,475)
Total period straight line rent and other (36,744) (20,349) (17,148)
Recognized MRR in the period 427,957 390,267 375,515
MRR at period end
Total period revenues (GAAP basis) $ 539,368 $ 480,818 $ 450,524
Less: Total revenues excluding last month (491,731) (438,810) (412,041)
Total revenues for last month of period 47,637 42,008 38,483
Less: Last month variable lease revenue from recoveries (4,953) (4,578) (3,822)
Last month deferred setup fees (2,207) (1,333) (1,015)
Last month straight line rent and other (2,349) (2,413) (2,505)
Add: Pro rata share of MRR at period end of unconsolidated entity 411 350 -
MRR at period end (1)
$ 38,539 $ 34,034 $ 31,141
(1)Does not include our booked-not-billed MRR balance, which was $12.9 million, $7.8 million and $5.2 million as of December 31, 2020, 2019 and 2018, respectively.
Net Operating Income (NOI)
We calculate net operating income (“NOI”), as net income (loss) (computed in accordance with GAAP), excluding: interest expense, interest income, tax expense (benefit), depreciation and amortization, write off of unamortized deferred financing costs, other (income) expense, debt restructuring costs, transaction, integration and impairment costs, gain (loss) on sale of real estate, restructuring costs, general and administrative expenses and similar adjustments for unconsolidated entities. We allocate a management fee charge of 4% of cash revenues for all facilities (with the exception of the leased facilities acquired in 2015, which were allocated a charge of 10% of cash revenues through 2018) as a property operating cost and a corresponding reduction to general and administrative expense to cover the day-to-day administrative costs to operate our data centers. The management fee charge is reflected as a reduction to net operating income.
Management uses NOI as a supplemental performance measure because it provides a useful measure of the operating results from our customer leases. In addition, we believe it is useful to investors in evaluating and comparing the operating performance of our properties and to compute the fair value of our properties. Our NOI may not be comparable to other REITs’ NOI as other REITs may not calculate NOI in the same manner. NOI should be considered only as a supplement to net income (loss) as a measure of our performance and should not be used as a measure of our results of operations or liquidity or as an indication of funds available to meet our cash needs, including our ability to make distributions to our stockholders. NOI is a measure of the operating performance of our properties and not of our performance as a whole. NOI is therefore not a substitute for net income (loss) as computed in accordance with GAAP.
A reconciliation of net income (loss) to NOI is presented below:
Year Ended December 31,
(unaudited $ in thousands) 2020 2019 2018
Net Operating Income (NOI)
Net income (loss) $ 14,576 $ 31,665 $ (7,175)
Equity in net loss of unconsolidated entity 2,044 1,473 -
Interest income (2) (111) (150)
Interest expense 30,724 26,593 28,749
Depreciation and amortization 199,889 168,305 149,891
Debt restructuring costs 18,036 1,523 605
Other (income) expense (159) 50 -
Tax expense (benefit) 438 (37) (3,368)
Transaction, integration and impairment costs 4,340 15,190 2,743
General and administrative expenses 84,965 80,385 80,857
Gain on sale of real estate, net - (14,769) -
Restructuring - - 37,943
NOI from consolidated operations (1)
354,851 310,267 290,095
Pro rata share of NOI from unconsolidated entity (2)
4,122 2,789 -
Total NOI $ 358,973 $ 313,056 $ 290,095
Breakdown of NOI by facility:
Atlanta (DC - 1) data center (3)
$ 106,199 $ 96,196 $ 87,060
Atlanta-Suwanee data center 48,829 48,704 48,165
Irving data center 45,318 45,484 42,621
Richmond data center 26,434 32,979 33,445
Chicago data center 18,444 13,104 8,878
Piscataway data center 17,944 13,584 12,266
Ashburn data center 17,704 4,698 1,250
Dulles data center 12,926 11,730 16,944
Princeton data center 10,149 9,977 9,729
Fort Worth data center 9,799 4,021 902
Santa Clara data center 9,352 7,549 8,344
Leased data centers (4)
7,322 8,793 9,695
Sacramento data center 5,879 6,204 7,448
Atlanta (DC - 2) data center (5)
5,216 - -
Netherlands data centers (6)
4,341 2,041 -
Hillsboro data center 270 - -
Other facilities 8,725 5,203 3,348
NOI from consolidated operations (1)
354,851 310,267 290,095
Pro rata share of NOI from unconsolidated entity (2)
4,122 2,789 -
Total NOI $ 358,973 $ 313,056 $ 290,095
(1)Includes facility level general and administrative allocation charges of 4% of cash revenue for all facilities (with the exception of the leased facilities acquired in 2015, which were allocated a charge of 10% of cash revenues through 2018). These allocated charges aggregated to $19.8 million, $18.6 million and $20.8 million for the years ended December 31, 2020, 2019 and 2018, respectively.
(2)QTS’ pro rata share of the unconsolidated entity is 50%.
(3)This property was formerly known as “Atlanta-Metro data center” but has been renamed “Atlanta (DC-1)” to distinguish between the existing data center and the new property development.
(4)At December 31, 2020 includes 7 facilities. All facilities are leased, including one subject to a finance lease.
(5)Represents the newly developed data center building at our Atlanta, GA campus.
(6)Consists of two data centers located in Eemshaven, Netherlands and Groningen, Netherlands.
Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (EBITDAre) and Adjusted EBITDA
We calculate EBITDAre in accordance with the standards established by NAREIT. EBITDAre represents net income (loss) (computed in accordance with GAAP) adjusted to exclude gains (or losses) from sales of depreciated property related to our primary business, income tax expense (or benefit), interest expense, depreciation and amortization, impairments of depreciated property related to our primary business, and similar adjustments for unconsolidated entities. Management uses EBITDAre as a supplemental performance measure because it provides performance measures that, when compared year over year, captures the performance of our operations by removing the impact of our capital structure (primarily interest expense) and asset base charges (primarily depreciation and amortization) from our operating results.
Due to the volatility and nature of certain significant charges and gains recorded in our operating results that management believes are not reflective of operating performance, we compute an adjusted measure of EBITDAre, which we refer to as Adjusted EBITDA. We calculate Adjusted EBITDA as EBITDAre excluding certain non-routine charges, write off of unamortized deferred financing costs, gains (losses) on extinguishment of debt, restructuring costs, and transaction and integration costs, as well as our pro-rata share of each of those respective adjustments associated with the unconsolidated entity aggregated into one line item categorized as “Adjustments for the unconsolidated entity.” In addition, we calculate Adjusted EBITDA excluding certain non-cash recurring costs such as equity-based compensation. We believe that Adjusted EBITDA provides investors with another financial measure that may facilitate comparisons of operating performance between periods and, to the extent other REITs calculate Adjusted EBITDA on a comparable basis, between REITs.
Management uses EBITDAre and Adjusted EBITDA as supplemental performance measures as they provide useful measures of assessing our operating results. Other companies may not calculate EBITDAre or Adjusted EBITDA in the same manner. Accordingly, our EBITDAre and Adjusted EBITDA may not be comparable to others. EBITDAre and Adjusted EBITDA should be considered only as supplements to net income (loss) as measures of our performance and should not be used as substitutes for net income (loss), as measures of our results of operations or liquidity or as indications of funds available to meet our cash needs, including our ability to make distributions to our stockholders.
A reconciliation of net income (loss) to EBITDAre and Adjusted EBITDA is presented below:
Year Ended December 31,
(unaudited $ in thousands) 2020 2019 2018
EBITDAre and Adjusted EBITDA
Net income (loss) $ 14,576 $ 31,665 $ (7,175)
Equity in net loss of unconsolidated entity 2,044 1,473 -
Interest income (2) (111) (150)
Interest expense 30,724 26,593 28,749
Tax expense (benefit) 438 (37) (3,368)
Depreciation and amortization 199,889 168,305 149,891
(Gain) Loss on disposition of depreciated property - (13,408) 6,994
Impairments of depreciated property - 11,461 8,842
Pro rata share of EBITDAre from unconsolidated entity
4,088 2,775 -
EBITDAre (1)
$ 251,757 $ 228,716 $ 183,783
Debt restructuring costs 18,036 1,523 605
Equity-based compensation expense 25,133 16,412 14,972
Restructuring costs - - 22,107
Transaction, integration and implementation costs 4,361 3,729 2,743
Adjusted EBITDA $ 299,287 $ 250,380 $ 224,210
(1)EBITDAre for the year ended December 31, 2019 includes a $1.4 million gain on sale of real estate related to certain assets considered incidental to our primary business and were included in the “Gain on sale of real estate, net” line item of the consolidated statement of operations. No gains, losses or impairment write-downs associated with assets incidental to our primary business were included in EBITDAre for the years ended December 31, 2020 and December 31, 2018.
Liquidity and Capital Resources
Short-Term Liquidity
Our short-term liquidity needs include funding capital expenditures for the development of data center space (a significant portion of which is discretionary), meeting debt service and debt maturity obligations, funding payments for finance leases, funding distributions to our common and preferred stockholders and unit holders, utility costs, site maintenance costs, real estate and personal property taxes, insurance, rental expenses, general and administrative expenses and certain recurring and non-recurring capital expenditures.
We expect that we will incur approximately $800 million to $900 million in capital expenditures in the year ended December 31, 2021, in connection with the development of our data center facilities, which excludes acquisitions and includes our 50% proportionate share of capital expenditures at the Manassas facility that was contributed to an unconsolidated entity. We expect to spend approximately $675 million to $775 million of capital expenditures with vendors on development, and the remainder on other capital expenditures and capitalized internal project costs (including capitalized interest, commissions, payroll and other similar costs), personal property and other less material capital projects. A significant portion of these expenditures are discretionary in nature and we may ultimately determine not to make these expenditures or the timing of expenditures may vary.
We expect to meet these costs and our other short-term liquidity needs through operating cash flow, cash and cash equivalents, borrowings under our credit facilities, proceeds from the forward equity transactions discussed below, additional equity issuances through our Current ATM program or other capital markets activity including debt issuances. We may also sell an interest in certain projects into unconsolidated entities as another source of capital.
Our cash paid for capital expenditures for the years ended December 31, 2020, 2019 and 2018 are summarized in the table below (in thousands):
Year Ended December 31,
2020 2019 2018
Development $ 657,461 $ 256,012 $ 386,592
Acquisitions 43,933 76,383 117,029
Maintenance capital expenditures 10,150 4,233 6,662
Other capital expenditures (1)
106,201 105,059 91,049
Total capital expenditures $ 817,745 $ 441,687 $ 601,332
(1)Represents capital expenditures for capitalized interest, commissions, personal property, overhead costs and corporate fixed assets. Corporate fixed assets primarily relate to construction of corporate offices, leasehold improvements and product related assets.
Long-Term Liquidity
Our long-term liquidity needs primarily consist of funds for property acquisitions, scheduled debt maturities, funding payments for finance leases, recurring and non-recurring capital expenditures, and dividend payments on our common stock, Series A Preferred Stock and Series B Preferred Stock. We may also pursue new developments and additional redevelopment of our data centers and future redevelopment of other space in our portfolio. We may also pursue development on land we own that is available at multiple data center properties in our portfolio. The development and/or redevelopment of this space, including timing, is at our discretion and will depend on a number of factors, including availability of capital and our estimate of the demand for data center space in the applicable market. We expect to meet our long-term liquidity needs with net cash provided by operations, incurrence of additional long-term indebtedness, borrowings under our credit facility, distributions from our unconsolidated entity and issuance of additional equity (including forward equity transactions) or debt securities, subject to prevailing market conditions, as discussed below. We may also sell an interest in certain projects into unconsolidated entities as another source of capital.
Equity
In February 2019, we conducted an underwritten offering of 7,762,500 shares of our Class A common stock, $0.01 par value per share (the “Class A common stock”) consisting of 4,000,000 shares issued during the first quarter of 2019 and 3,762,500 shares which were issued on a forward basis. During the year ended December 31, 2019 we settled a portion of the 3,762,500 shares subject to the forward sales agreements, and during the year ended December 31, 2020 we settled the remaining shares subject to the forward sale agreements as shown in the table below.
In June 2019, we established an “at-the-market” equity offering program (the “Prior ATM Program”) pursuant to which we could issue, from time to time, up to $400 million of our Class A common stock, $0.01 par value per share (the “Class A common stock”), which could include shares to be sold on a forward basis. The use of forward sales under the Prior ATM Program generally allowed us to lock in a price on the sale of shares of our Class A common stock when sold by the forward sellers, but defer receiving the net proceeds from such sales until the shares of our Class A common stock are issued at settlement on a later date.
In May 2020, we established a new “at-the-market” equity offering program (the “Current ATM Program”) pursuant to which we may issue, from time to time, up to $500 million of our Class A common stock, which may include shares to be sold on a forward basis. As under the Prior ATM Program, the use of forward sales under the Current ATM Program generally allows us to lock in a price on the sale of shares of our Class A common stock when sold by the forward sellers, but defer receiving the net proceeds from such sales until the shares of our Class A common stock are issued at settlement on a later date.
At any time during the term of any forward sale under the Prior ATM Program or the Current ATM Program we may settle the forward sale by physical delivery of shares of Class A common stock to the forward purchasers or, at our election, cash settle or net share settle. The initial forward sale price per share under each forward sale equals the product of (x) an amount equal to 100% of proceeds of the sale of such shares minus the applicable forward selling commission and (y) the volume weighted average price per share at which the borrowed shares of our common stock were sold pursuant to the equity distribution agreement by the relevant forward seller during the applicable forward hedge selling period for such shares to hedge the relevant forward purchaser’s exposure under such forward sale. Thereafter, the forward sale price is subject to adjustment on a daily basis based on a floating interest rate factor equal to the specified daily rate less a spread, and is decreased based on specified amounts related to dividends on shares of our common stock during the term of the applicable forward sale. If the specified daily rate is less than the spread on any day, the interest rate factor will result in a daily reduction of the applicable forward sale price.
During the year ended December 31, 2020, we received $286.3 million of net proceeds from the settlement of forward shares as noted in the table below. We expect to physically settle (by delivering shares of Class A common stock) the remaining forward sales under the Prior ATM Program and Current ATM Program prior to the first anniversary date of each respective transaction. In addition, during the year ended December 31, 2020, we utilized the forward provisions under the Prior ATM Program and the Current ATM Program to allow for the sale of additional shares of our common stock as noted in the table below.
In June 2020, we conducted an underwritten offering of 4,400,000 shares of common stock offered on a forward basis at a price of $64.90 per share representing available net proceeds upon physical settlement of approximately $266.9 million as of December 31, 2020. We expect to physically settle the forward sale agreements (by the delivery of shares of common stock) and receive proceeds, subject to certain adjustments, from the sale of those shares of common stock by June 30, 2021, although we have the right to elect settlement prior to that time.
The following table represents a summary of our equity issuances during the year ended December 31, 2020 (in thousands):
Offering Program Forward
Shares Sold/(Settled) Net Proceeds Available/(Received) (1)
Shares and net proceeds available as of December 31, 2019 3,795 $ 173,776 (2)
February 2019 Offering - Settlement (931) (3)
(35,841)
June 2019 Prior ATM Program - Sales 4,550 243,577
June 2019 Prior ATM Program - Settlements (4,981) (3)
(250,496)
May 2020 Current ATM Program - Sales 3,128 189,640
June 2020 Offering - Sales 4,400 266,894
Shares and net proceeds available as of December 31, 2020 9,961 $ 587,550
(1)Net Proceeds Available remain subject to certain adjustments until settled.
(2)Proceeds available reported in the Form 10-K for the period ended December 31, 2019 were $177.8 million. The $4 million decrease is due primarily to QTS’ declared dividends, which reduces cash expected to be received upon full physical settlement of the forward shares.
(3)Represents the number of forward shares we elected to physically settle during the period.
As shown in the table above, as of December 31, 2020, we had access to approximately $587.6 million of net proceeds through forward stock sales (subject to further adjustment as described above). We view forward equity sales as an important capital raising tool that we expect to continue to strategically and selectively use, subject to market conditions and overall availability under the Current ATM Program.
Manassas Unconsolidated Entity.
On February 22, 2019, we entered into an agreement with Alinda, an infrastructure investment firm, with respect to our Manassas (DC-1) data center, as described above under “Factors That May Influence Future Results of Operations and Cash Flows.” At the closing, we received approximately $53 million in proceeds, which was comprised of the cash contributed by Alinda and also borrowings under a $164.5 million secured credit facility entered into by the unconsolidated entity at closing that carries a rate of LIBOR plus 2.00% to 2.25% depending on the existing leverage ratio. We used these proceeds to pay down our revolving credit facility and for general corporate purposes. Under the agreement, we will receive additional proceeds in the future as and when we complete development of each phase of the Manassas data center and place it into service, which allows us to receive proceeds for Alinda’s share of the unconsolidated entity based on the expected full stabilization of the asset. These proceeds will be based on a 6.75% capitalization rate for each phase delivered during the first three years of the agreement.
Cash
As of December 31, 2020, our cash and cash equivalents balance was $22.8 million.
Dividends and Distributions
The following tables present quarterly cash dividends and distributions paid to our common and preferred stockholders for the years ended December 31, 2020 and 2019:
Year Ended December 31, 2020
Record Date Payment Date Per Share Rate Aggregate
Dividend/Distribution
Amount (in millions)
Common Stock
September 18, 2020 October 6, 2020 $ 0.47 $ 32.0
June 19, 2020 July 7, 2020 0.47 31.5
March 20, 2020 April 7, 2020 0.47 31.5
December 20, 2019 January 7, 2020 0.44 28.6
$ 123.6
Series A Preferred Stock
September 30, 2020 October 15, 2020 $ 0.45 $ 1.9
June 30, 2020 July 15, 2020 0.45 1.9
March 31, 2020 April 15, 2020 0.45 1.9
December 31, 2019 January 15, 2020 0.45 1.9
$ 7.6
Series B Preferred Stock
September 30, 2020 October 15, 2020 $ 1.63 $ 5.1
June 30, 2020 July 15, 2020 1.63 5.1
March 31, 2020 April 15, 2020 1.63 5.1
December 31, 2019 January 15, 2020 1.63 5.1
$ 20.4
Year Ended December 31, 2019
Record Date Payment Date Per Share Rate Aggregate
Dividend/Distribution
Amount (in millions)
Common Stock
September 19, 2019 October 4, 2019 $ 0.44 $ 27.3
June 25, 2019 July 9, 2019 0.44 27.3
March 20, 2019 April 4, 2019 0.44 27.3
December 21, 2018 January 8, 2019 0.41 23.7
$ 105.6
Series A Preferred Stock
September 30, 2019 October 15, 2019 $ 0.45 $ 1.9
June 30, 2019 July 15, 2019 0.45 1.9
March 31, 2019 April 15, 2019 0.45 1.9
December 31, 2018 January 15, 2019 0.45 1.9
$ 7.6
Series B Preferred Stock
September 30, 2019 October 15, 2019 $ 1.63 $ 5.1
June 30, 2019 July 15, 2019 1.63 5.1
March 31, 2019 April 15, 2019 1.63 5.1
December 31, 2018 January 15, 2019 1.63 5.1
$ 20.4
Additionally, subsequent to December 31, 2020, we paid the following dividends:
•On January 7, 2021, we paid our regular quarterly cash dividend of $0.47 per common share to stockholders of record as of the close of business on December 22, 2020.
•On January 15, 2021, we paid a quarterly cash dividend of approximately $0.45 per share on our Series A Preferred Stock to holders of Series A Preferred Stock of record as of the close of business on December 31, 2020.
•On January 15, 2021, we paid a quarterly cash dividend of approximately $1.63 per share on our Series B Preferred Stock to holders of Series B Preferred Stock of record as of the close of business on December 31, 2020.
Indebtedness
As of December 31, 2020, we had approximately $1.9 billion of indebtedness, including finance lease obligations.
Unsecured Credit Facility. In October 2019, we amended and restated our unsecured credit facility (the “unsecured credit facility”), which among other things increased the total potential borrowings, extended maturity dates, lowered interest rates, and provided for an additional term loan under the agreement. The unsecured credit facility includes a $225 million term loan which matures on December 17, 2024 (“Term Loan A”), a $225 million term loan which matures on April 27, 2025 (“Term Loan B”), an additional term loan of $250 million, which matures on October 18, 2026 (“Term Loan C”), and a $1.0 billion revolving credit facility which matures on December 17, 2023. The revolving portion of the unsecured credit facility has a one-year extension option available to the Company, subject to certain conditions. Amounts outstanding under the unsecured credit facility bear interest at a variable rate equal to, at our election, LIBOR or a base rate, plus a spread that will vary depending upon our leverage ratio. For revolving credit loans, the spread ranges from 1.25% to 1.85% for LIBOR loans and 0.25% to 0.85% for base rate loans. For Term Loan A and Term Loan B, the spread ranges from 1.20% to 1.80% for LIBOR loans and 0.20% to 0.80% for base rate loans. For Term Loan C, the spread ranges from 1.50% to 1.85% for LIBOR loans and 0.50% to 0.85% for base rate loans. The unsecured credit facility also provides for borrowing capacity of up to $300 million in various foreign currencies.
Under the unsecured credit facility, the capacity may be increased from the current capacity of $1.7 billion to $2.2 billion subject to certain conditions set forth in the credit agreement, including the consent of the administrative agent and obtaining necessary commitments. We are also required to pay a commitment fee to the lenders assessed on the unused portion of the unsecured revolving credit facility. At our election, we can prepay amounts outstanding under the unsecured credit facility, in whole or in part, without penalty or premium.
Our ability to borrow under the unsecured credit facility is subject to ongoing compliance with a number of customary affirmative and negative covenants, including limitations on liens, mergers, consolidations, investments, distributions, asset sales and affiliate transactions, as well as the following financial covenants: (i) the Operating Partnership's and its subsidiaries' consolidated total unsecured debt plus any capitalized lease obligations with respect to the unencumbered asset pool properties may not exceed 60% of the unencumbered asset pool value (or 65% of the unencumbered asset pool value for up to four consecutive fiscal quarters immediately following a material acquisition for which the Operating Partnership has provided written notice to the Agent, provided the four fiscal quarter period includes the quarter in which the material acquisition was consummated); (ii) the unencumbered asset pool debt yield cannot be less than 10.5%; (iii) QTS must maintain a minimum fixed charge coverage ratio (defined as the ratio of consolidated EBITDA, subject to certain adjustments, to consolidated fixed charges) for the prior two most recently-ended calendar quarters of 1.50 to 1.00; (iv) QTS must maintain a maximum debt to gross asset value (as defined in the amended and restated credit agreement) ratio of 60% (or 65% for the four consecutive fiscal quarters immediately following a material acquisition for which the Operating Partnership has provided written notice to the Agent, provided the four fiscal quarter period includes the quarter in which the material acquisition was consummated); and (v) QTS must maintain tangible net worth (as defined in the amended and restated credit agreement) which cannot be less than the sum of $1.7 billion plus 75% of the net proceeds from any equity offerings subsequent to June 30, 2019.
The availability under the revolving credit facility is the lesser of (i) $1.0 billion, (ii) 60% of the unencumbered asset pool capitalized value (or 65% of the unencumbered asset pool capitalized value for the four consecutive fiscal quarters immediately following a material acquisition for which the Operating Partnership has provided written notice to the Agent, provided the four fiscal quarter period includes the quarter in which the material acquisition was consummated) and (iii) the amount resulting in an unencumbered asset pool debt yield of 10.5%. In the case of clauses (ii) and (iii) of the preceding
sentence, the amount available under the unsecured revolving credit facility is adjusted to take into account any other unsecured debt and certain capitalized leases. A material acquisition is an acquisition of properties or assets with a gross purchase price equal to or in excess of 15% of the Operating Partnership’s gross asset value (as defined in the amended and restated credit agreement) as of the end of the most recently ended quarter for which financial statements are publicly available. The availability of funds under our unsecured credit facility depends on compliance with our covenants. The current availability under the unsecured revolving credit facility was $607.7 million as of December 31, 2020.
As of December 31, 2020, we had outstanding $1.1 billion of indebtedness under the unsecured credit facility, consisting of $392.3 million of outstanding borrowings under the unsecured revolving credit facility and $700.0 million aggregate outstanding under Term Loans A, B and C, exclusive of net debt issuance costs of $7.1 million. In connection with the unsecured credit facility, as of December 31, 2020, we had letters of credit outstanding aggregating to $3.5 million. As of December 31, 2020, the weighted average interest rate for amounts outstanding under the unsecured credit facility, including the effects of interest rate swaps, was 2.65%.
As of December 31, 2020, we had interest rate swap agreements in place with an aggregate notional amount of $700 million. The forward swap agreements effectively fix the interest rate on $700 million of term loan borrowings, $225 million of swaps allocated to Term Loan A, $225 million allocated to Term Loan B and $250 million allocated to Term Loan C, through the current maturity dates of the respective term loans.
Term Loan D. In October 2020, through our Operating Partnership, we entered into a $250 million term loan (“Term Loan D”) that matures on January 15, 2026. Consistent with our existing term loans, amounts outstanding under Term Loan D bear interest at a variable rate equal to, at our election, LIBOR or a base rate, plus a spread that will vary depending upon our leverage ratio. The spread ranges from 1.20% to 1.80% for LIBOR loans and 0.20% to 0.80% for base rate loans. In addition, Term Loan D contains a LIBOR floor of 0.25%. When combined with our current $1.7 billion unsecured credit facility, Term Loan D increases QTS' aggregate unsecured credit facility capacity to $1.95 billion. Term Loan D also provides for a $250 million accordion feature to increase borrowing capacity up to $500 million, subject to obtaining necessary commitments. Term Loan D contains various debt covenants with which we are subject to, and these debt covenants are substantially the same as the debt covenants associated with the unsecured credit facility.
4.750% Senior Notes. In November 2017, the Operating Partnership and QTS Finance Corporation, a subsidiary of the Operating Partnership formed solely for the purpose of facilitating the offering of the previously outstanding 5.875% Senior Notes due 2022 (collectively, the “Issuers”), issued $400 million aggregate principal amount of 4.750% Senior Notes due 2025 (the “4.750% Senior Notes”) in a private offering. The 4.750% Senior Notes had an interest rate of 4.750% per annum, were issued at a price equal to 100% of their face value and were scheduled to mature on November 15, 2025. During the fourth quarter of 2020 we used availability on our unsecured revolving credit facility, which increased due to revolver repayments following the issuance of the 3.875% Senior Notes and closing of Term Loan D, to fund the redemption of, and satisfy and discharge the indenture pursuant to which the Issuers issued, all of their outstanding 4.750% Senior Notes. We incurred expenses in the fourth quarter of 2020 associated with the redemption of the 4.750% Senior Notes of $18.0 million, including early redemption fees of $-14.3 million as well as noncash charges of $-3.7 million related to the write off of existing deferred financing costs.
3.875% Senior Notes. In October 2020, the Issuers issued $500 million aggregate principal amount of senior notes due October 1, 2028 (the “3.875% Senior Notes”) in a private offering. The 3.875% Senior Notes have an interest rate of 3.875% per annum and were issued at a price equal to 100% of their face value. The net proceeds from the offering were used to repay a portion of the amount outstanding under our unsecured revolving credit facility, and subsequently with availability under the unsecured revolving credit facility we funded the redemption of, and satisfied and discharged the indenture pursuant to which the Issuers issued, all of their outstanding 4.750% Senior Notes described above. As of December 31, 2020, the net debt issuance costs associated with the 3.875% Senior Notes were $7.5 million.
The Issuers may redeem the 3.875% Senior Notes prior to maturity at their option at the prices set forth in the indenture dated as of October 7, 2020, among QTS, the Issuers, the guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee (the “Indenture”). The Indenture also includes customary negative covenants, including limitations on asset sales, investments, distributions, incurrence of additional debt and affiliate transactions.
The 3.875% Senior Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all of the Operating Partnership’s existing subsidiaries (other than certain foreign subsidiaries and receivables entities) and future subsidiaries that guarantee any indebtedness of QTS Realty Trust, Inc., the Issuers or any other subsidiary guarantor, other
than QTS Finance Corporation, the co-issuer of the 3.875% Senior Notes. QTS Realty Trust, Inc. does not guarantee the 3.875% Senior Notes and will not be required to guarantee the 3.875% Senior Notes except under certain circumstances.
Lenexa Mortgage. On March 8, 2017, we entered into a $1.9 million mortgage loan secured by our Lenexa facility. This mortgage had a fixed rate of 4.1%, with periodic principal payments due monthly and a balloon payment of $1.6 million scheduled for May 2022. During the fourth quarter of 2020, we paid off the outstanding loan balance of $1.7 million associated with the Lenexa mortgage.
Contingencies
We are subject to various routine legal proceedings and other matters in the ordinary course of business. While resolution of these matters cannot be predicted with certainty, management believes, based upon information currently available, that the final outcome of these proceedings will not have a material adverse effect on our financial condition, liquidity or results of operations.
Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2020, including the future non-cancellable minimum rental payments required under operating leases and the maturities and scheduled principal repayments of indebtedness and other agreements (in thousands):
Obligations (1)
2021 2022 2023 2024 2025 Thereafter Total
Operating Leases $ 9,818 $ 10,266 $ 10,393 $ 8,317 $ 8,036 $ 40,872 $ 87,702
Finance Leases 2,693 2,937 3,205 3,489 3,790 25,604 41,718
Future Principal Payments of Indebtedness (2)
- - 392,337 225,000 225,000 1,000,000 1,842,337
Total (3)
$ 12,511 $ 13,203 $ 405,935 $ 236,806 $ 236,826 $ 1,066,476 $ 1,971,757
(1)Contractual obligations do not include our energy power purchase agreements as QTS has the ability to sell unused capacity back to the utility provider.
(2)Does not include the related debt issuance costs on the 3.875% Senior Notes nor the related debt issuance costs on the term loans reflected at December 31, 2020. Also does not include letters of credit outstanding aggregating to $3.5 million as of December 31, 2020 under our unsecured credit facility.
(3)Total obligations amount does not include contractual interest that we are required to pay on our long-term debt obligations. Contractual interest payments on our credit facilities, mortgages, finance leases and other financing arrangements through the scheduled maturity date, assuming no prepayment of debt and inclusive of the effects of interest rate swaps, are shown below. Interest payments were estimated based on the principal amount of debt outstanding and the applicable interest rate as of December 31, 2020 (in thousands):
2021 2022 2023 2024 2025 Thereafter Total
$ 55,196 $ 57,193 $ 57,022 $ 42,142 $ 32,156 $ 61,871 $ 305,580
Off-Balance Sheet Arrangements
On February 22, 2019, we entered into an agreement with Alinda, an infrastructure investment firm, with respect to our Manassas (DC-1) data center, as described above under “Factors That May Influence Future Results of Operations and Cash Flows.” As of December 31, 2020, our pro rata share of mortgage debt of the unconsolidated entity, excluding deferred financing costs, was approximately $45.7 million, all of which is subject to forward interest rate swap agreements. See Item 7A, Quantitative and Qualitative Disclosures About Market Risk, for information on the Company’s interest rate swaps.
The Company has various forward equity contracts, described above, that provide for the ability to raise capital and issue common stock at varying prices and future dates. As of December 31, 2020, the Company had access to approximately $587.6 million of net proceeds through forward stock sales (subject to further adjustment as described above under the heading “Equity Capital”). The Company views forward equity sales as an important capital raising tool that it expects to continue to strategically and selectively use, subject to market conditions and overall availability under the Current ATM Program. See the section above titled “Equity Capital” for additional information related to our forward stock sales.
Cash Flows
Year Ended December 31,
(in thousands) 2020 2019 2018
Cash flow provided by (used for):
Operating activities $ 299,715 $ 199,490 $ 191,273
Investing activities (817,745) (387,260) (598,553)
Financing activities 521,168 191,396 410,796
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Cash flow provided by operating activities was $299.7 million for the year ended December 31, 2020, compared to $199.5 million for the year ended December 31, 2019. The increase in cash flow provided by operating activities of $100.2 million was primarily due to an increase in cash operating income of $50.4 million as well as an increase in cash flow associated with net changes in working capital of $49.9 million primarily relating to an increase in deferred income.
Cash flow used for investing activities increased by $430.5 million to $817.7 million for the year ended December 31, 2020, compared to $387.3 million for the year ended December 31, 2019. The increase was due primarily to an increase in additions to property and equipment of $412.7 million related to the expansion and build out of our portfolio. Also contributing to the increase in cash used for investing activities was proceeds of $52.7 million received from our contribution of assets to an unconsolidated entity during 2019. Partially offsetting these increases was a decrease in cash paid for acquisitions of $32.5 million primarily related to our acquisition of the Netherlands facilities during 2019.
Cash flow provided by financing activities was $521.2 million for the year ended December 31, 2020, compared to $191.4 million for the year ended December 31, 2019. The increase was primarily due to our issuance of Term Loan D during the year ended December 31, 2020 which contributed $250.0 million, the replacement of our 4.75% Senior Notes with our 3.875% Senior Notes contributing a net increase of $100.0 million, higher net equity proceeds received of $17.1 million, partially offset by higher payments of cash dividends to common stockholders of $17.2 million and $14.3 million of early extinguishment fees associated with our payoff of the 4.75% Senior Notes during the year ended December 31, 2020.
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
For a discussion comparing the Company’s liquidity and capital resources for the year ended December 31, 2019 compared to the year ended December 31, 2018 refer to subsection “Liquidity and Capital Resources - Year Ended December 31, 2019 Compared to Year Ended December 31, 2018” of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2019, which is incorporated by reference herein. This discussion should be read in conjunction with Item 8. Financial Statements and Supplementary Data.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our financial statements which have been prepared in accordance with GAAP. The preparation of these financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results may differ from these estimates. We have provided a summary of our significant accounting policies in Note 2 of our audited financial statements included elsewhere in this Form 10-K. We describe below accounting policies that require material subjective or complex judgments and that have the most significant impact on our financial condition and results of operations.
Acquisitions and Sales of Real Estate. When accounting for business combinations, asset acquisitions and real estate sales, we are required to make subjective assessments which involve significant judgment to allocate the purchase price paid to the acquired tangible assets and intangible assets and liabilities for asset acquisitions and business combinations and to determine the amount of non-monetary consideration received for sales of real estate.
In order to determine fair values associated with assets we acquire or non-monetary consideration received in sales of real estate assets, we utilize estimation models to derive the fair value of identifiable assets and any equity consideration received. These estimation models consist of common real estate valuation models that include Level 3 inputs such as market rents, discount rates, expected occupancy and estimates of additional capital expenditures, and capitalization rates derived from market data.
Unconsolidated Entities. We account for our 50% equity investment in our unconsolidated entity arrangement using the equity method of accounting. We determined that while the entity is a variable interest entity (“VIE”), we were not the primary beneficiary, thus the equity method of accounting was appropriate for transactions between QTS and the entity.
We determine whether an entity is a VIE and, if so, whether it should be consolidated by utilizing judgments and estimates that are inherently subjective. The determination of whether an entity in which we hold a direct or indirect variable interest is a VIE is based on several factors, including whether the entity’s total equity investment at risk upon inception is sufficient to finance the entity’s activities without additional subordinated financial support. We make judgments regarding the sufficiency of the equity at risk based first on a qualitative analysis, and then a quantitative analysis, if necessary.
We analyze any investments in VIEs to determine if we are the primary beneficiary. In evaluating whether we are the primary beneficiary, we evaluate our direct and indirect economic interests in the entity. Determining which reporting entity, if any, is the primary beneficiary of a VIE is primarily a qualitative approach focused on identifying which reporting entity has both (1) the power to direct the activities of a VIE that most significantly impact such entity’s economic performance and (2) the obligation to absorb losses or the right to receive benefits from such entity that could potentially be significant to such entity. Performance of that analysis requires the exercise of judgment.
We consider a variety of factors in identifying the entity that holds the power to direct matters that most significantly impact the VIE’s economic performance including, but not limited to, the ability to direct financing, leasing, construction and other operating decisions and activities. In addition, we consider the rights of other investors to participate in those decisions, to replace the manager and to sell or liquidate the entity.
Capitalization of Costs. We capitalize certain development costs, including internal costs, incurred in connection with development of real estate assets. The capitalization of costs during the construction period (including interest and related loan fees, property taxes, internal payroll costs, and other direct and indirect project costs) begins when redevelopment efforts commence and ends when the asset is ready for its intended use.
Impairment of Long-Lived Assets and Goodwill. Whenever events or changes in circumstances indicate that the carrying amount of the asset group(s) may not be recoverable, we assess whether there has been impairment in the value of long-lived assets used in operations or in development and intangible assets subject to amortization. Recoverability of assets to be held and used is generally measured by comparison of the carrying amount of the asset group to the future net cash flows, undiscounted and without interest, expected to be generated by the asset group over its remaining useful life. If the net carrying value of the asset group exceeds the value of the undiscounted cash flows, the fair value of the asset is assessed and may be considered impaired. An impairment loss is recognized based on the excess of the carrying amount of the impaired asset over its fair value.
The fair value of goodwill is the consideration transferred which is not allocable to identifiable intangible and tangible assets. Goodwill is subject to at least an annual assessment for impairment. In connection with the goodwill impairment evaluation that the Company performed on October 1, 2020, the Company determined qualitatively that it is not more likely than not that the fair value of the Company’s one reporting unit was less than the carrying amount, thus it did not perform a quantitative analysis.
Rental Revenue. We, as a lessor, have retained substantially all the risks and benefits of ownership and have concluded our leases qualify as operating leases. ASC Topic 842 allows lessors to combine nonlease components with the related lease components if both the timing and pattern of transfer are the same for the nonlease component(s) and related lease component, and the lease component would be classified as an operating lease. The single combined component is accounted for under ASC Topic 842 if the lease component is the predominant component and is accounted for under ASC Topic 606 if the nonlease components are the predominant components. We combine our lease and nonlease components that meet the defined criteria and account for the combined lease component under ASC Topic 842. For lease agreements that provide for scheduled rent increases, rental income is recognized on a straight-line basis over the non-cancellable term of the leases,
which commences when control of the space has been provided to the customer. Rental revenue also includes amortization of set-up fees which are paid in advance by the lessee and amortized over the term of the respective lease, as discussed above.
Inflation
A significant portion of our long-term leases-leases with a term greater than three years-contain rent increases and reimbursement for certain operating costs. As a result, we believe that we are largely insulated from the effects of inflation over periods greater than three years. Leases with terms of three years or less will be replaced or renegotiated within three years and should adjust to reflect changed conditions, also mitigating the effects of inflation. Moreover, to the extent that there are material increases in utility costs, we generally reserve the right to renegotiate the rate. However, any increases in the costs of redevelopment of our properties will generally result in a higher cost of the property, which will result in increased cash requirements to redevelop our properties and increased depreciation and amortization expense in future periods, and, in some circumstances, we may not be able to directly pass along the increase in these redevelopment costs to our customers in the form of higher rental rates.
Distribution Policy
To satisfy the requirements to qualify as a REIT, and to avoid paying tax on our income, QTS intends to continue to make regular quarterly distributions of all, or substantially all, of its REIT taxable income (excluding net capital gains) to its stockholders.
All distributions will be made at the discretion of our board of directors and will depend on our historical and projected results of operations, liquidity and financial condition, QTS’ REIT qualification, our debt service requirements, operating expenses and capital expenditures, prohibitions and other restrictions under financing arrangements and applicable law and other factors as our board of directors may deem relevant from time to time. We anticipate that our estimated cash available for distribution will exceed the annual distribution requirements applicable to REITs and the amount necessary to avoid the payment of tax on undistributed income. However, under some circumstances, we may be required to make distributions in excess of cash available for distribution in order to meet these distribution requirements and we may need to borrow funds to make certain distributions. If we borrow to fund distributions, our future interest costs would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have been.
The Operating Partnership also includes certain partners that are subject to a taxable income allocation, however, not entitled to receive recurring distributions. The partnership agreement does stipulate however, to the extent that taxable income is allocated to these partners that the partnership will make a distribution to these partners equal to the lesser of the actual per unit distributions made to Class A partners or an estimated amount to cover federal, state and local taxes on the allocated taxable income.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. The primary market risk to which we believe we are exposed is interest rate risk. Many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control, contribute to interest rate risk.
As of December 31, 2020, we had interest rate swap agreements in place with an aggregate notional amount of $700 million. The forward swap agreements effectively fix the interest rate on $700 million of term loan borrowings, $225 million of swaps allocated to Term Loan A, $225 million allocated to Term Loan B and $250 million allocated to Term Loan C, through the current maturity dates of the respective term loans.
As of December 31, 2020, after consideration of interest rates swaps in effect, we had outstanding $642.3 million of consolidated indebtedness that bore interest at variable rates, which was comprised of the revolving portion of the unsecured credit facility as well as Term Loan D.
We monitor our market risk exposures using a sensitivity analysis. Our sensitivity analysis estimates the exposure to market risk sensitive instruments assuming a hypothetical 1% change in year-end interest rates. A 1% increase in interest rates would increase the interest expense on the $642.3 million of variable indebtedness outstanding as of December 31, 2020 by
approximately $6.2 million annually. Conversely, a decrease in the LIBOR rate to 0.00% would decrease the interest expense on this $642.3 million of variable indebtedness outstanding by approximately $0.6 million annually based on the one-month LIBOR rate of approximately 0.14% as of December 31, 2020.
In July 2017, the Financial Conduct Authority (“FCA”) that regulates LIBOR announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee (“ARRC”) which identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative to USD-LIBOR in derivatives and other financial contracts. The Company has contracts consisting of the unsecured credit facility, Term Loan D and the forward interest rate swap agreements, documented above, that are indexed to LIBOR and is monitoring and evaluating the related risks, which may include higher interest on loans and amounts received and paid on derivative instruments. These risks arise in connection with transitioning contracts to a new alternative rate, including any resulting value transfer that may occur. While we expect LIBOR to be available in substantially its current form until the end of 2021, it is possible that LIBOR will become unavailable prior to that point. This could result, for example, if sufficient banks decline to make submissions to the LIBOR administrator. In that case, the risks associated with the transition to an alternative reference rate will be accelerated and magnified.
The above analyses do not consider the effect of any change in overall economic activity that could impact interest rates or expected changes associated with future indebtedness. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to the Financial Statements on page.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Based on an evaluation of disclosure controls and procedures for the period ended December 31, 2020, conducted by the Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer concluded that QTS’ disclosure controls and procedures are effective to ensure that information required to be disclosed by QTS in reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act). Our internal control system was designed to provide reasonable assurance to management and our board of directors regarding the preparation and fair presentation of published financial statements in accordance with generally accepted accounting principles.
As of December 31, 2020, management assessed the effectiveness of QTS Realty Trust, Inc.'s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment, management has concluded that, as of December 31, 2020, QTS Realty Trust, Inc.’s internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Ernst & Young LLP, an independent registered public accounting firm, has audited QTS Realty Trust, Inc.’s consolidated financial statements included in this Annual Report on Form 10-K and, as part of its audit, has issued its report, included herein on page, on the effectiveness of QTS Realty Trust, Inc.’s internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There were no changes in QTS’ internal control over financial reporting during the three-month period ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, QTS’ internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information regarding directors is incorporated herein by reference from the section entitled “Proposal One: Election of Directors-Nominees for Election as Directors” in the Company’s definitive Proxy Statement (“2021 Proxy Statement”) to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, for the Company’s Annual Meeting of Stockholders to be held on May 4, 2021. The 2021 Proxy Statement will be filed within 120 days after the end of the Company’s fiscal year ended December 31, 2020.
The information regarding executive officers is incorporated herein by reference from the section entitled “Executive Officers” in the Company’s 2021 Proxy Statement.
The information regarding the Company’s code of business conduct and ethics is incorporated herein by reference from the sections entitled “Corporate Governance and Board Matters-Code of Business Conduct and Ethics” in the Company’s 2021 Proxy Statement.
The information regarding the Company’s audit committee, its members and the audit committee financial experts is incorporated by reference herein from the section entitled “Corporate Governance and Board Matters-Committees of the Board-Audit Committee” in the Company’s 2021 Proxy Statement.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
The information included under the following captions in the Company’s 2021 Proxy Statement is incorporated herein by reference: “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Compensation of Executive Officers,” “Corporate Governance and Board Matters-Compensation of Directors” and “Corporate Governance and Board Matters-Compensation Committee Interlocks and Insider Participation.”

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information regarding security ownership of certain beneficial owners and management is incorporated herein by reference from the section entitled “Security Ownership of Certain Beneficial Owners and Management” and “Compensation of Executive Officers-Equity Compensation Plan Information” in the Company’s 2021 Proxy Statement.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information regarding transactions with related persons and director independence is incorporated herein by reference from the sections entitled “Certain Relationships and Related Party Transactions” and “Corporate Governance and Board Matters-Corporate Governance Profile” in the Company’s 2021 Proxy Statement.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information regarding principal auditor fees and services and the audit committee’s pre-approval policies are incorporated herein by reference from the sections entitled “Proposal Four: Ratification of the Appointment of Independent Registered Public Accounting Firm-Principal Accountant Fees and Services” and “Proposal Four: Ratification of the Appointment of Independent Registered Public Accounting Firm-Pre-Approval Policies and Procedures” in the Company’s 2021 Proxy Statement.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following is a list of documents filed as a part of this report:
(1)Financial Statements
Included herein at pages through.
(2)Financial Statement Schedules
The following financial statement schedules are included herein at pages through:
Schedule II-Valuation and Qualifying Accounts
Schedule III-Real Estate Investments
All other schedules for which provision is made in Regulation S-X are either not required to be included herein under the related instructions, are inapplicable or the related information is included in the footnotes to the applicable financial statement and, therefore, have been omitted.
(3)Exhibits
INDEX TO EXHIBITS
Exhibit
Number Exhibit Description
3.1 Articles of Amendment and Restatement of QTS Realty Trust, Inc., incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on October 17, 2013 (Commission File No. 001-36109)
3.2 Second Amended and Restated Bylaws of QTS Realty Trust, Inc., as amended, incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q filed with the SEC on August 3, 2020 (Commission File No. 001-36109)
3.3 Articles Supplementary designating QTS Realty Trust, Inc.’s 7.125% Series A Cumulative Redeemable Perpetual Preferred Stock, liquidation preference $25.00 per share, $0.01 par value per share, incorporated by reference to Exhibit 3.2 to the Company’s Form 8-A filed on March 15, 2018 (Commission File No. 001-36109)
3.4 Articles Supplementary designating QTS Realty Trust, Inc.’s 6.50% Series B Cumulative Convertible Perpetual Preferred Stock, liquidation preference $100.00 per share, $0.01 par value per share, incorporated by reference to Exhibit 3.3 to the Company’s Form 8-A filed on June 25, 2018 (Commission File No. 001-36109)
3.5 Articles Supplementary opting out of the Maryland Unsolicited Takeovers Act, incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on September 25, 2018 (Commission File No. 001-36109)
3.6 Articles of Amendment to the Articles of Amendment and Restatement of QTS Realty Trust, Inc., incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on May 10, 2019 (Commission File No. 002-36109)
4.1 Form of Specimen Class A Common Stock Certificate, incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-11/A filed with the SEC on September 26, 2013 (Commission File No. 333-190675)
4.2 Indenture, dated October 7, 2020, by and among QualityTech, LP, QTS Finance Corporation, QTS Realty Trust, Inc., certain subsidiaries of QualityTech, LP and Deutsche Bank Trust Company Americas, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on October 7, 2020 (Commission File No.001-36109)
4.3 Form of Global Note representing the Notes (included as Exhibit A to Exhibit 4.2 hereof).
4.4 Form of stock certificate evidencing the 7.125% Series A Cumulative Redeemable Perpetual Preferred Stock, liquidation preference $25.00 per share, $0.01 par value per share, incorporated by reference to Exhibit 4.1 to the Company’s Form 8-A filed on March 15, 2018 (Commission File No. 001-36109)
4.5 Form of stock certificate evidencing the 6.50% Series B Cumulative Convertible Perpetual Preferred Stock, liquidation preference $100.00 per share, $0.01 par value per share, incorporated by reference to Exhibit 4.1 to the Company’s Form 8-A filed on June 25, 2018 (Commission File No. 001-36109)
4.6 Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934 +
10.1 Amended and Restated Certificate of Limited Partnership of QualityTech, LP, incorporated by reference to Exhibit 3.7 to the Company’s Annual Report on Form 10-K filed on February 28, 2020 (Commission File No. 001-36109)
10.2 Fifth Amended and Restated Agreement of Limited Partnership of QualityTech, LP dated October 15, 2013 incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on October 17, 2013 (Commission File No. 001-36109)
10.3 Amendment No. 1 to the Fifth Amended and Restated Agreement of Limited Partnership of QualityTech, LP incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on March 20, 2018 (Commission File No.001-36109)
10.4 Amendment No. 2 to Fifth Amended and Restated Agreement of Limited Partnership of QualityTech, LP, dated as of June 25 2018, by QTS Realty Trust, Inc., incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on June 27, 2018 (Commission File No. 001-36109)
10.5 Amendment No. 3 to the Fifth Amended and Restated Agreement of Limited Partnership of QualityTech, LP, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on October 16, 2018 (Commission File No.001-36109)
10.6 Indemnification Agreement dated as of September 25, 2013 by and between QTS Realty Trust, Inc. and Chad L. Williams, incorporated by reference to Exhibit 10.13 to the Registration Statement on Form S-11/A filed with the SEC on September 26, 2013 (Commission File No. 001-36109) †
10.7 Indemnification Agreement dated as of September 25, 2013 by and between QTS Realty Trust, Inc. and Jeffrey H. Berson, incorporated by reference to Exhibit 10.17 to the Registration Statement on Form S-11/A filed with the SEC on September 26, 2013 (Commission File No. 333-190675) †
10.8 Indemnification Agreement dated as of September 25, 2013 by and between QTS Realty Trust, Inc. and Shirley E. Goza, incorporated by reference to Exhibit 10.18 to the Registration Statement on Form S-11/A filed with the SEC on September 26, 2013 (Commission File No. 333-190675) †
10.9 Indemnification Agreement dated as of September 25, 2013 by and between QTS Realty Trust, Inc. and John W. Barter, incorporated by reference to Exhibit 10.19 to the Registration Statement on Form S-11/A filed with the SEC on September 26, 2013 (Commission File No. 333-190675) †
10.10 Indemnification Agreement dated as of September 25, 2013 by and between QTS Realty Trust, Inc. and William O. Grabe, incorporated by reference to Exhibit 10.20 to the Registration Statement on Form S-11/A filed with the SEC on September 26, 2013 (Commission File No. 333-190675) †
10.11 Indemnification Agreement dated as of September 25, 2013 by and between QTS Realty Trust, Inc. and Catherine R. Kinney, incorporated by reference to Exhibit 10.21 to the Registration Statement on Form S-11/A filed with the SEC on September 26, 2013 (Commission File No. 333-190675) †
10.12 Indemnification Agreement dated as of September 25, 2013 by and between QTS Realty Trust, Inc. and Peter A. Marino, incorporated by reference to Exhibit 10.22 to the Registration Statement on Form S-11/A filed with the SEC on September 26, 2013 (Commission File No. 333-190675) †
10.13 Indemnification Agreement dated as of September 25, 2013 by and between QTS Realty Trust, Inc. and Scott D. Miller, incorporated by reference to Exhibit 10.23 to the Registration Statement on Form S-11/A filed with the SEC on September 26, 2013 (Commission File No. 333-190675) †
10.14 Indemnification Agreement dated as of September 25, 2013 by and between QTS Realty Trust, Inc. and Philip P. Trahanas, incorporated by reference to Exhibit 10.24 to the Registration Statement on Form S-11/A filed with the SEC on September 26, 2013 (Commission File No. 333-190675) †
10.15 Indemnification Agreement dated as of September 25, 2013 by and between QTS Realty Trust, Inc. and Stephen E. Westhead, incorporated by reference to Exhibit 10.25 to the Registration Statement on Form S-11/A filed with the SEC on September 26, 2013 (Commission File No. 333-190675) †
10.16 Indemnification Agreement dated as of March 21, 2016 by and between QTS Realty Trust, Inc. and Jon Greaves, incorporated by reference to Exhibit 10.30 to the Form 10-K for the year ended December 31, 2016 filed with the SEC on March 1, 2017 (Commission File No. 001-36109) †
10.17 Indemnification Agreement dated as of August 31, 2016 by and between QTS Realty Trust, Inc. and Steven Bloom, incorporated by reference to Exhibit 10.31 to the Form 10-K for the year ended December 31, 2016 filed with the SEC on March 1, 2017 (Commission File No. 001-36109) †
10.18 Indemnification Agreement, dated as of February 20, 2018, by and between QTS Realty Trust, Inc. and David Robey, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on February 20, 2018 (Commission File No. 001-36109)†
10.19 Indemnification Agreement, dated as of September 24, 2018, by and among QTS Realty Trust, Inc. and Mazen Al-Rawashdeh, incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on September 25, 2018 (Commission File No. 001-36109)†
10.20 Indemnification Agreement, dated as of March 13, 2019, by and between QTS Realty Trust, Inc. and Wayne Rehberger, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on March 13, 2019 (Commission File No. 001-36109)†
10.21 Indemnification Agreement, dated as of December 17, 2020, by and between QTS Realty Trust, Inc. and Joan A. Dempsey, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on December 17, 2020 (Commission File No. 001-36109)†
10.22 Indemnification Agreement, dated as of October 1, 2020, by and between QTS Realty Trust, Inc. and Matt N. Thomson†+
10.23 Registration Rights Agreement dated October 15, 2013 by and among QTS Realty Trust, Inc. and the parties listed on Schedule I thereto, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on October 17, 2013 (Commission File No. 001-36109)
10.24 Amended and Restated Registration Rights Agreement dated October 15, 2013 by and among QTS Realty Trust, Inc., QualityTech GP, LLC, Chad L. Williams and certain entities owned or controlled by Chad L. Williams, incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed with the SEC on October 17, 2013 (Commission File No. 001-36109)
10.25 Tax Protection Agreement dated as of October 15, 2013 by and among QTS Realty Trust, Inc., QualityTech, LP and the signatories party thereto, incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed with the SEC on October 17, 2013 (Commission File No. 001-36109)
10.26 QualityTech, LP 2010 Equity Incentive Plan, incorporated by reference to Exhibit 10.20 to the Registration Statement on Form S-11/A filed with the SEC on August 16, 2013 (Commission File No. 333-190675) †
10.27 Amendment No. 1 to QualityTech, LP 2010 Equity Incentive Plan, incorporated by reference to Exhibit 10.21 to the Registration Statement on Form S-11/A filed with the SEC on August 16, 2013 (Commission File No. 333-190675) †
10.28 Form of Class O Unit Award Agreement (Time-Based Vesting) under QualityTech, LP 2010 Equity Incentive Plan, incorporated by reference to Exhibit 10.22 to the Registration Statement on Form S-11/A filed with the SEC on August 16, 2013 (Commission File No. 333-190675) †
10.29 Form of Class O Unit Award Agreement (Performance-Based Vesting) under QualityTech, LP 2010 Equity Incentive Plan, incorporated by reference to Exhibit 10.23 to the Registration Statement on Form S-11/A filed with the SEC on August 16, 2013 (Commission File No. 333-190675) †
10.30 Form of Class O Unit Award Agreement under QualityTech, LP 2010 Equity Incentive Plan, incorporated by reference to Exhibit 10.24 to the Registration Statement on Form S-11/A filed with the SEC on August 16, 2013 (Commission File No. 333-190675) †
10.31 QTS Realty Trust, Inc. 2013 Equity Incentive Plan, incorporated by reference to Exhibit 10.39 to the Registration Statement on Form S-11/A filed with the SEC on September 26, 2013 (Commission File No. 333-190675) †
10.32 Amendment No. 1 to QTS Realty Trust, Inc. 2013 Equity Incentive Plan, incorporated by reference to Exhibit 10.40 to the Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on February 23, 2015 (Commission File No. 001-36109) †
10.33 Amendment No. 2 to QTS Realty Trust, Inc. 2013 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on May 6, 2015 (Commission File No. 001-36109) †
10.34 Amendment No. 3 to QTS Realty Trust, Inc. 2013 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on May 9, 2019 (Commission File No. 001-36109)†
10.35 Form of Restricted Shares Agreement under QTS Realty Trust, Inc. 2013 Equity Incentive Plan, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on November 6, 2013 (Commission File No. 001-36109) †
10.36 Form of Non-Qualified Option Agreement under QTS Realty Trust, Inc. 2013 Equity Incentive Plan, incorporated by reference to Exhibit 10.29 to the Registration Statement on Form S-11/A filed with the SEC on August 16, 2013 (Commission File No. 333-190675) †
10.37 Form of Performance Share Unit Agreement (Performance-Based [Non-Shareholder Return] Units) under QTS Realty Trust, Inc. 2013 Equity Incentive Plan. †
10.38 Form of Performance Share Unit Agreement (Performance-Based [Non-Shareholder Return] Units) for Grants to Chief Executive Officer under QTS Realty Trust, Inc. 2013 Equity Incentive Plan. †
10.39 Form of Performance Share Unit Agreement (Performance-Based [Shareholder Return] Units) under QTS Realty Trust, Inc. 2013 Equity Incentive Plan. )†
10.40 Form of Performance Share Unit Agreement (Performance-Based [Shareholder Return] Units) for Grants to Chief Executive Officer under QTS Realty Trust, Inc. 2013 Equity Incentive Plan. †
10.41 Ground Lease, dated October 2, 1997, by and between Mission-West Valley Land Corporation, as landlord, and Nexus Properties, Inc., Kinetic Systems, Inc., Digital Square, Inc., R. Darrell Gary, Michael J. Reidy and Michael J. Reidy as trustee of the Ronald Bonaguidi irrevocable trust, together as tenants, incorporated by reference to Exhibit 10.33 to the Registration Statement on Form S-11/A filed with the SEC on August 16, 2013 (Commission File No. 333-190675)
10.42 First Amendment to Ground Lease, dated April 29, 1998, by and between Mission-West Valley Land Corporation, as landlord, and Nexus Properties, Inc., Kinetic Systems, Inc., R. Darrell Gary, Michael J. Reidy and Michael J. Reidy as trustee of the Ronald Bonaguidi irrevocable trust, together as tenants, incorporated by reference to Exhibit 10.34 to the Registration Statement on Form S-11/A filed with the SEC on August 16, 2013 (Commission File No. 333-190675)
10.43 Second Amendment to Ground Lease, dated September 24, 2009, by and between Mission-West Valley Land Corporation, as landlord, and Quality Investment Properties Santa Clara, LLC, Chad L. Williams, incorporated by reference to Exhibit 10.35 to the Registration Statement on Form S-11/A filed with the SEC on August 16, 2013 (Commission File No. 333-190675)
10.44 Third Amendment to Ground Lease, dated November 17, 2011, by and between Mission-West Valley Land Corporation, as landlord, and Quality Investment Properties Santa Clara, LLC, Chad L. Williams, incorporated by reference to Exhibit 10.36 to the Registration Statement on Form S-11/A filed with the SEC on August 16, 2013 (Commission File No. 333-190675)
10.45 Lease Agreement, dated January 1, 2009, by and between Quality Investment Properties-Williams Center, L.L.C. and Quality Technology Services Lenexa, LLC, incorporated by reference to Exhibit 10.38 to the Registration Statement on Form S-11/A filed with the SEC on August 16, 2013 (Commission File No. 333-190675)
10.46 First Amendment to Lease, dated March 1, 2013, by and between Quality Investment Properties-Williams Center, L.L.C. and Quality Technology Services Lenexa, LLC, incorporated by reference to Exhibit 10.39 to the Registration Statement on Form S-11/A filed with the SEC on August 16, 2013 (Commission File No. 333-190675)
10.47 Second Amendment to Lease, dated December 1, 2013, by and between Quality Investment Properties-Williams Center, L.L.C. and Quality Technology Services Lenexa, LLC, incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed with the SEC on May 7, 2014 (Commission File No. 001-36109)
10.48 Third Amendment to Lease, dated May 1, 2014, by and between Quality Investment Properties-Williams Center, L.L.C. and Quality Technology Services Lenexa, LLC, incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed with the SEC on May 7, 2014 (Commission File No. 001-36109)
10.49 2020 Amended and Restated QTS Realty Trust, Inc. Employee Stock Purchase Plan, incorporated by reference to Exhibit 10.45 to the Company’s Annual Report on Form 10-K filed on February 28, 2020 (Commission File No. 001-36109)†
10.50 Employment Agreement, dated April 11, 2017, by and among QTS Realty Trust, Inc., QualityTech, LP, Quality Technology Services, LLC and Chad L. Williams, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on April 14, 2017 (Commission File No. 001-36109) †
10.51 Employment Agreement, dated April 11, 2017, by and among QTS Realty Trust, Inc., QualityTech, LP, Quality Technology Services, LLC and Jeffrey H. Berson, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on April 14, 2017 (Commission File No. 001-36109) †
10.52 Employment Agreement, dated April 11, 2017, by and among QTS Realty Trust, Inc., QualityTech, LP, Quality Technology Services, LLC and Shirley E. Goza, incorporated by reference to Exhibit 10.7 to the Quarterly Report on Form 10-Q filed with the SEC on May 8, 2017 (Commission File No. 001-36109) †
10.53 Employment Agreement, dated April 11, 2017, by and among QTS Realty Trust, Inc., QualityTech, LP, Quality Technology Services, LLC and Jon D. Greaves, incorporated by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q filed with the SEC on May 8, 2017 (Commission File No. 001-36109) †
10.54 Employment Agreement, dated April 11, 2017, by and among QTS Realty Trust, Inc., QualityTech, LP, Quality Technology Services, LLC and Steven C. Bloom, incorporated by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q filed with the SEC on May 8, 2017 (Commission File No. 001-36109) †
10.55 Amendment to Employment Agreement dated June 23, 2017 by and among QTS Realty Trust, Inc., QualityTech, LP, Quality Technology Services, LLC, and Chad L. Williams, incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed with the SEC on August 3, 2017 (Commission File No. 001-36109) †
10.56 Amendment to Employment Agreement dated June 23, 2017 by and among QTS Realty Trust, Inc., QualityTech, LP, Quality Technology Services, LLC, and Jeffrey H. Berson, incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed with the SEC on August 3, 2017 (Commission File No. 001-36109) †
10.57 Amendment to Employment Agreement dated June 23, 2017 by and among QTS Realty Trust, Inc., QualityTech, LP, Quality Technology Services, LLC, and Shirley E. Goza, incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q filed with the SEC on August 3, 2017 (Commission File No. 001-36109) †
10.58 Amendment to Employment Agreement dated June 23, 2017 by and among QTS Realty Trust, Inc., QualityTech, LP, Quality Technology Services, LLC, and Steven C. Bloom, incorporated by reference to Exhibit 10.7 to the Quarterly Report on Form 10-Q filed with the SEC on August 3, 2017 (Commission File No. 001-36109) †
10.59 Amendment to Employment Agreement dated June 23, 2017 by and among QTS Realty Trust, Inc., QualityTech, LP, Quality Technology Services, LLC, and Jon D. Greaves, incorporated by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q filed with the SEC on August 3, 2017 (Commission File No. 001-36109) †
10.60 Employment Agreement, dated March 15, 2018, by and among QTS Realty Trust, Inc., QualityTech, LP, Quality Technology Services Holding, LLC, Quality Technology Services, LLC, and David Robey, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on March 20, 2018 (Commission File No. 001-36109) †
10.61 Employment Agreement, dated October 1, 2020, by and among QTS Realty Trust, Inc., QualityTech, LP, Quality Technology Services, LLC, and Matt N. Thomson †+
10.62 Retirement and Transition Agreement and Release of all Claims, dated June 30, 2020, among Shirley E. Goza and QTS Realty Trust, Inc., QualityTech, LP and Quality Technology Services, LLC, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on June 30, 2020 (Commission File No. 001-36109) †
10.63 Stock Purchase Agreement dated May 6, 2015 by and among Quality Technology Services Holding, LLC, Carpathia Holdings, LLC and Carpathia Acquisition, Inc., incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC on May 12, 2015 (Commission File No. 002-36109)
10.64 First Amendment to Stock Purchase Agreement dated May 6, 2015 by and among Quality Technology Services Holding, LLC, Carpathia Holdings, LLC and Carpathia Acquisition, Inc., incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC on June 19, 2015 (Commission File No. 001-36109)
10.65 Transaction Agreement, dated as of April 24, 2018, by and between QTS Technology Services Holding, LLC, QualityTech, LP, and General Datatech, L.P., incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on August 6, 2018 (Commission File No. 001-36109)
10.66 Channel Agreement, dated as of April 24, 2018, by and between QTS Technology Services Holding, LLC and General Datatech, L.P., incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on August 6, 2018 (Commission File No. 001-36109)
10.67 Seventh Amended and Restated Credit Agreement dated as of October 18, 2019 by and among QualityTech, LP, KeyBank National Association, as agent, the lenders party thereto, KeyBanc Capital Markets, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Regions Capital Markets and TD Securities (USA) LLC, as joint lead arrangers and joint bookrunners with respect to the Revolving Credit Loans, Term Loans A and Term Loans B, KeyBanc Capital Markets, Inc., Regions Capital Markets, SunTrust Robinson Humphrey, Inc. and TD Securities (USA) LLC as joint lead arrangers and joint bookrunners with respect to the Term Loans C, and Bank of America, N.A., Regions Bank and TD Securities (USA) LLC, as co-syndication agents, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on October 22, 2019 (Commission File No.001-36109)
10.68 Fifth Amended and Restated Unconditional Guaranty of Payment and Performance dated as of October 18, 2019 by QTS Realty Trust, Inc. (to KeyBank National Association), incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on October 22, 2019 (Commission File No.001-36109)
10.69 Term Loan Agreement dated as of October 16, 2020 by and among QualityTech, LP, KeyBank National Association, as agent, the lenders party thereto, KeyBanc Capital Markets, Inc., BMO Capital Markets, Inc. and PNC Capital Markets LLC, as joint lead arrangers and joint book runners, and TD Securities (USA) LLC and Truist Bank, as co-documentation agents, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on October 16, 2020 (Commission File No.001-36109)
10.70 Unconditional Guaranty of Payment and Performance dated as of October 16, 2020 by QTS Realty Trust, Inc. (to KeyBank National Association), incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on October 16, 2020 (Commission File No.001-36109)
10.71 QTS Realty Trust, Inc. Director Deferred Compensation Plan, effective January 1, 2018 , incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 10, 2018 (Commission File No. 001-36109). †
21.1 List of Subsidiaries of QTS Realty Trust, Inc.+
23.1 Consent of Ernst & Young LLP+
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002+
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002+
32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002+
101 The following materials from QTS Realty Trust, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020, formatted in iXBRL (inline eXtensible Business Reporting Language): (i) consolidated balance sheets, (ii) consolidated statements of operations and statements of comprehensive income, (iii) consolidated statements of equity and partners’ capital, (iv) consolidated statements of cash flows, and (v) the notes to the consolidated financial statements
104 Cover Page Interactive Date File (formatted in iXBRL (inline eXtensible Business Reporting Language) and contained in Exhibit 101)
+ Filed herewith.
†Denotes a management contract or compensatory plan, contract or arrangement.