Partners' Capital, Equity and Incentive Compensation Plans

9 Months Ended

Sep. 30, 2014

Partners' Capital, Equity and Incentive Compensation Plans [Abstract]

Partners' Capital, Equity and Incentive Compensation Plans

8. Partners’ Capital, Equity and Incentive Compensation Plans

As of September 30, 2014, the Operating Partnership had three classes of limited partnership units outstanding: Class A units of limited partnership interest (“Class A units”), Class RS LTIP units of limited partnership interest (“Class RS units”) and Class O LTIP units of limited partnership units (“Class O Units”). The Class A Units are redeemable at any time on or after one year following the later of November 1, 2013 (which is the beginning of the first full calendar month following the completion of the IPO) or the date of initial issuance. The Company may in its sole discretion elect to assume and satisfy the redemption amount with cash or its shares. Class RS units or Class O units were issued upon grants made under the QualityTech, LP 2010 Equity Incentive Plan (the “2010 Equity Plan”). Class RS units and Class O units may be subject to vesting and are pari passu with Class A units. Vested Class RS units and Class O units are convertible into Class A units based on formulas contained in the partnership agreement of the Operating Partnership.

In connection with its IPO, the Company issued Class A common stock and Class B common stock. Class B common stock entitles the holder to 50 votes per share and was issued to enable the Company’s Chief Executive Officer to exchange 2% of his Operating Partnership units so he may have a vote proportionate to his economic interest in the Company. Also in connection with its IPO, the Company adopted the QTS Realty Trust, Inc. 2013 Equity Incentive plan (the “2013 Equity Incentive Plan”), which authorized 1.75 million shares to be issued under the plan, including options to purchase Class A common stock, restricted Class A common stock, Class O units, and Class RS units.

The following is a summary of award activity under the 2010 Equity Incentive Plan and 2013 Equity Incentive Plan and related information for the nine months ended September 30, 2014:  

	2010 Equity Incentive Plan					2013 Equity Incentive Plan
	Number of Class O units	Weighted average exercise price	Weighted average fair     value	Number of Class RS units	Weighted average price	Options	Weighted average exercise price	Weighted average fair     value	Restricted Stock	Weighted average price
Outstanding at December 31, 2013	1,622,747	$ 23.44	$ 3.84	173,750	$ 21.86	367,910	$ 21.00	$ 3.50	108,629	$ 21.00
Granted	—	—	—	—	—	238,039	25.59	4.96	44,000	25.51
Exercised	—	—	—	—	—	—	—	—	—	—
Released from restriction (1)	—	—	—	(90,437)	24.93	—	—	—	—	—
Cancelled/Expired	(75,454)	23.21	5.48	—	—	(14,000)	21.00	3.52	—	—
Outstanding at September 30, 2014	1,547,293	$ 23.45	$ 3.76	83,313	$ 23.65	591,949	$ 22.85	$ 4.25	152,629	$ 22.30

(1) This represents Class RS units that upon vesting have converted to Operating Partnership units.

The assumptions and fair values for restricted stock and options to purchase shares of Class A common stock granted for the nine months ended September 30, 2014 is included in the following table on a per unit basis. Class O units and options to purchase shares of Class A common stock were valued using the Black-Scholes model.

	Three and Nine Months Ended September 30, 2014
Fair value of restricted stock granted	$25.51-$28.82
Fair value of options granted	$4.94-$5.98
Expected term (years)	5.5-6.1
Expected volatility	33%
Expected dividend yield	4.02-4.55%
Expected risk-free interest rates	1.7-1.9%

The following table summarizes information about awards outstanding as of September 30, 2014.

		Operating Partnership Awards Outstanding
	Exercise prices		Awards outstanding	Weighted average remaining vesting period (years)
Class RS Units	$	-	83,313	2
Class O Units	$	20-25	1,547,293	2
Total Operating Partnership awards outstanding			1,630,606

		QTS Realty Trust, Inc. Awards Outstanding
	Exercise prices		Awards outstanding	Weighted average remaining vesting period (years)
Restricted stock	$	-	152,629	3
Options to purchase Class A common stock	$	21-28.82	591,949	1
Total QTS Realty Trust, Inc awards outstanding			744,578

All nonvested LTIP unit awards are valued as of the grant date and generally vest ratably over a defined service period. Certain nonvested LTIP unit awards vest on the earlier of achievement by the Company of various performance goals or specified dates in 2015 and 2016. As of September 30, 2014 there were 0.8 million, 0.1 million, 0.2 million and 0.6 million nonvested Class O units, Class RS units, restricted Class A common stock and options to purchase Class A common stock outstanding, respectively. As of September 30, 2014 the Company had $7.3 million of unrecognized equity-based compensation expense which will be recognized over the remaining vesting period of up to 4 years. The total intrinsic value of the awards outstanding at September 30, 2014 was $20.9 million.

On January 7, 2014 the Company paid a dividend to common stockholders of $0.24 per common share and the Operating Partnership made a distribution to its partners of $0.24 per unit in an aggregate amount of $9.0 million. On April 8,  July 8 and October 7, 2014, the Company paid its regular quarterly cash dividend of $0.29 per common share and the Operating Partnership made a distribution to its partners of $0.29 per unit in an aggregate amount of $10.7 million, $10.7 million and $10.5 million, respectively. Additionally, a distribution of approximately $200,000 was made to Class O LTIP holders during the three months ended June 30, 2014 to cover federal, state and local taxes on the allocated taxable income of the O LTIPs.