Partners' Capital, Equity and Incentive Compensation Plans

3 Months Ended

Mar. 31, 2015

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

Partners' Capital, Equity and Incentive Compensation Plans

8. Partners’ Capital, Equity and Incentive Compensation Plans

QualityTech, LP

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

As of March 31, 2015, 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 Incentive Plan”). Class RS units and Class O units may be subject to vesting and are pari passu with Class A units. Each Class RS unit and Class O unit is convertible into Class A units by the Operating Partnership at any time or by the holder at any time following full vesting (if such unit is subject to vesting) based on formulas contained in the partnership agreement. In addition, upon certain circumstances set forth in the partnership agreement, vested Class RS units automatically convert into Class A units of the Operating Partnership.

QTS Realty Trust, Inc.

In connection with its IPO, QTS issued Class A common stock and Class B common stock. Class B common stock entitles the holder to 50 votes per share and was issued to enable the Company’s Chief Executive Officer to exchange 2% of his Operating Partnership units so he may have a vote proportionate to his economic interest in the Company. Also in connection with its IPO, QTS adopted the QTS Realty Trust, Inc. 2013 Equity Incentive plan (the “2013 Equity Incentive Plan”), which authorized 1.75 million shares of Class A common stock to be issued under the plan, including options to purchase Class A common stock, restricted Class A common stock, Class O units, and Class RS units. In March 2015, the Board of Directors approved an amendment to the 2013 Equity Incentive Plan to, among other things, increase the number of shares available for issuance under the plan by 3,000,000, subject to stockholder approval.  The stockholders voted on the amendment to the 2013 Equity Incentive Plan at the annual meeting of stockholders held on May 4, 2015.

The following is a summary of award activity under the 2010 Equity Incentive Plan and 2013 Equity Incentive Plan and related information for the three months ended March 31, 2015:  

	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 grant date value	Options	Weighted average exercise price	Weighted average fair     value	Restricted Stock	Weighted average grant date value
Outstanding at December 31, 2014	1,518,717	$ 23.49	$ 3.75	74,625	$ 23.49	584,949	$ 22.87	$ 4.10	246,785	$ 29.13
Granted	—	—	—	—	—	312,997	36.14	8.02	170,696	35.88
Exercised/Vested (2)	(23,939)	21.71	3.97	—	—	(5,406)	21.00	3.52	(13,448)	23.76
Released from restriction (1)	—	—	—	(8,687)	25.00	—	—	—	—	—
Cancelled/Expired (3)	—	—	—	—	—	(8,594)	21.00	3.52	(7,091)	24.36
Outstanding at March 31, 2015	1,494,778	$ 23.52	$ 3.75	65,938	$ 23.29	883,946	$ 27.60	$ 5.49	396,942	$ 32.30

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

(2) This represents the Class A common stock that has been released from restriction and which was not surrendered by the holder to satisfy their statutory minimum federal and state tax obligations associated with the vesting of restricted common stock.

(3) Includes 7,091 of restricted Class A common stock surrendered by certain employees to satisfy their statutory minimum federal and state tax obligations associated with the vesting of restricted common stock.

The assumptions and fair values for restricted stock and options to purchase shares of Class A common stock granted for the three months ended March 31, 2015 are 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 Months Ended March 31, 2015
Fair value of restricted stock granted	$35.81-$37.64
Fair value of options granted	$8.00-$8.05
Expected term (years)	5.5-6.1
Expected volatility	33%
Expected dividend yield	3.50-3.57%
Expected risk-free interest rates	1.67-1.69%

The following table summarizes information about awards outstanding as of March 31, 2015.

		Operating Partnership Awards Outstanding
	Exercise prices		Awards outstanding	Weighted average remaining vesting period (years)
Class RS Units	$	-	65,938	2
Class O Units	$	20-25	1,494,778	1
Total Operating Partnership awards outstanding			1,560,716

		QTS Realty Trust, Inc. Awards Outstanding
	Exercise prices		Awards outstanding	Weighted average remaining vesting period (years)
Restricted stock	$	-	396,942	3
Options to purchase Class A common stock	$	21-36.54	883,946	2
Total QTS Realty Trust, Inc awards outstanding			1,280,888

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 March 31, 2015 there were 0.7 million, 0.1 million, 0.4 million and 0.4 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 March 31, 2015 the Company had $18.0 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 March 31, 2015 was $42.2 million.

On January 7, 2014, the Company paid its first and prorated 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 January 7, 2015, 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. 

On March 2, 2015, the Company issued 5,000,000 shares of QTS’ Class A common stock and GA QTS Interholdco, LLC, a selling stockholder and an affiliate of General Atlantic LLC, sold 4,350,000 shares of QTS’ Class A common stock at a price of $34.75 per share. The selling stockholder granted the underwriters a 30-day option to purchase an aggregate of up to an additional 1,402,500 shares of QTS’ Class A common stock at the public offering price, which the underwriters exercised. The Company used the net proceeds of approximately $166.4 million to repay amounts outstanding under its unsecured revolving credit facility. The Company did not receive any proceeds from the offering of shares by the selling stockholder.