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 December 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 fair value 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 of the Operating Partnership. 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 approved the amendment at the annual meeting of stockholders held on May 4, 2015, increasing the total number of shares available for issuance under the 2013 Equity Incentive Plan to 4,750,000.

The following is a summary of award activity under the 2010 Equity Incentive Plan and 2013 Equity Incentive Plan and related information for the years ended December 31, 2015, 2014 and 2013:


	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 January 1, 2013	1,471,943	$23.09	$2.84	178,750	$24.20	—	$ —	$ —	—	$ —
Granted	224,244	25.00	10.62	—	—	370,410	21.00	3.50	108,629	21.00
Exercised	—	—	—	—	—	—	—	—	—	—
Released from restriction	—	—	—	(5,000)	20.00	—	—	—	—	—
Cancelled/Expired	(73,440)	—	5.31	—	—	(2,500)	—	3.52	—	—
Outstanding at December 31, 2013	1,622,747	$23.44	$3.84	173,750	$24.31	367,910	$21.00	$3.50	108,629	$21.00
Granted	—	—	—	—	—	238,039	25.59	4.96	172,102	32.66
Exercised/Vested	(15,750)	20.71	4.75	—	—	(3,000)	21.00	3.52	(25,786)	21.00
Released from restriction (1)	—	—	—	(99,125)	24.94	—	—	—	—	—
Cancelled/Expired	(88,280)	23.01	5.23	—	—	(18,000)	21.00	3.52	(8,160)	21.00
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	—	—	—	—	—	317,497	36.16	8.03	230,271	36.71
Exercised/Vested (2)	(222,499)	22.02	4.18	—	—	(23,157)	21.30	3.63	(54,400)	28.37
Released from restriction (1)	—	—	—	(34,750)	25.00	—	—	—	—	—
Cancelled/Expired (3)	(3,319)	20.00	3.92	—	—	(11,407)	21.00	3.52	(27,748)	28.33
Outstanding at December 31, 2015	1,292,899	$23.76	$3.68	39,875	$22.18	867,882	$27.80	$5.56	394,908	$33.82

(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 26,298 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 Class O units, restricted stock and options to purchase shares of Class A common stock granted for the years ended December 31, 2015, 2014 and 2013 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.


	2015	2014	2013
Fair value of Class O Units granted	$ -	$ -	$10.26-$10.92
Fair value of restricted stock granted	$35.81-$37.69	$25.51-$35.51	$ 21.00
Fair value of options granted	$8.00-$8.77	$4.94-$5.98	$3.45-$3.52
Expected term (years)	5.5-6.1	5.5-6.1	5.5-7.0
Expected volatility	33%	33%	32%-40%
Expected dividend yield	3.40-3.57%	4.02-4.55%	5.5%
Expected risk-free interest rates	1.67-1.94%	1.7-1.9%	1.4%-1.8%

The following tables summarize information about awards outstanding as of December 31, 2015.


		Operating Partnership Awards Outstanding
	Exercise prices		Awards outstanding	Weighted average remaining vesting period (years)
Class RS Units	$	-	39,875	0
Class O Units	$	20.00-25.00	1,292,899	1
Total Operating Partnership awards outstanding			1,332,774


		QTS Realty Trust, Inc. Awards Outstanding
	Exercise prices		Awards outstanding	Weighted average remaining vesting period (years)
Restricted stock	$	-	394,908	3
Options to purchase Class A common stock	$	21.00-37.69	867,882	1
Total QTS Realty Trust, Inc. awards outstanding			1,262,790

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 December 31, 2015 there were 0.5 million, 0.4 million and 0.4 million nonvested Class O units, restricted Class A common stock and options to purchase Class A common stock outstanding, respectively. As of December 31, 2015, there was an immaterial amount of Class RS units outstanding. As of December 31, 2015 the Company had $14.7 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 December 31, 2015 was $60.3 million.

Dividends and Distributions

The following tables present quarterly cash dividends and distributions paid to QTS’ common stockholders and the Operating Partnership’s unit holders for the years ended December 31, 2015 and 2014:


Year Ended December 31, 2015
Record Date	Payment Date	Per Common Share and Per Unit Rate		Aggregate Dividend/Distribution Amount (in millions)
September 18, 2015	October 6, 2015	$	0.32	$	15.3
June 19, 2015	July 8, 2015		0.32		15.3
March 20, 2015	April 7, 2015		0.32		13.4
December 19, 2014	January 7, 2015		0.29		10.7
		$	1.25	$	54.7


Year Ended December 31, 2014
Record Date	Payment Date	Per Common Share and Per Unit Rate			Aggregate Dividend/Distribution Amount (in millions)
September 19, 2014	October 7, 2014	$	0.29		$	10.5
June 20, 2014	July 8, 2014		0.29			10.9
March 20, 2014	April 8, 2014		0.29			10.8
December 20, 2013	January 7, 2014		0.24	*		9.0
		$	1.11		$	41.2

The per common share and per unit rate is prorated. It covers the period beginning October 15, 2013 (the closing date of the IPO) through December 31, 2013 and is based on a full quarter distribution of $0.29 per common share and per unit.

Additionally, on January 6, 2016, the Company paid its regular quarterly cash dividend of $0.32 per common share and per unit in the Operating Partnership to stockholders and unit holders of record as of the close of business on December 17, 2015.

Equity Issuances

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 in an underwritten public offering. 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 $166.0 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.

On June 5, 2015, the Company issued 5,750,000 shares of QTS’ Class A common stock and GA QTS Interholdco, LLC, a selling stockholder, sold 1,250,000 shares of QTS’ Class A common stock at a price of $37.00 per share in an underwritten public offering. The selling stockholder granted the underwriters a 30-day option to purchase an aggregate of up to an additional 1,050,000 shares of QTS’ Class A common stock at the public offering price, which the underwriters exercised. The Company used the net proceeds of approximately $203.4 million to fund a portion of the cash consideration payable by the Company in the Carpathia acquisition, and prior to such use, it used a portion of the net proceeds to repay amounts outstanding under its unsecured revolving credit facility and to pay off its Atlanta-Metro Equipment Loan. The Company did not receive any proceeds from the offering of shares by the selling stockholder.

On August 14, 2015, GA QTS Interholdco, LLC, a selling stockholder, sold 2,400,000 shares of QTS’ Class A common stock at a price of $41.00 per share in an underwritten public offering. The selling stockholder granted the underwriter a 30-day option to purchase an aggregate of up to an additional 360,000 shares of QTS’ Class A common stock at a price of $41.00 per share, of which the underwriters partially exercised the option with respect to 261,000 shares. The Company did not receive any proceeds from the offering of shares by the selling stockholder.

On November 30, 2015, GA QTS Interholdco, LLC, a selling stockholder, sold 2,175,000 shares of QTS’ Class A common stock at a price of $41.625 per share in an underwritten public offering. The selling stockholder granted the underwriter a 30-day option to purchase an aggregate of up to an additional 326,250 shares of QTS’ Class A common stock at a price of $41.625 per share, which the underwriter exercised in full. The Company did not receive any proceeds from the offering of shares by the selling stockholder.

QTS Realty Trust, Inc. Employee Stock Purchase Plan

In June 2015, the Company established the QTS Realty Trust, Inc. Employee Stock Purchase Plan (the “Plan”) to give eligible employees the opportunity to purchase, through payroll deductions, shares of the Company’s Class A common stock in the open market by an independent broker selected by the Company’s Board of Directors (the “Board”) or the plan’s administrator. Eligible employees include employees of the Company and its majority-owned subsidiaries (excluding executives) who have been employed for at least thirty days and who perform at least thirty hours of service per week for the Company. The Plan became effective July 1, 2015 and is administered by the Board or by a committee of one or more persons appointed by the Board. The Company has reserved 250,000 shares for purchase under the Plan and has also agreed to pay the brokerage commissions and fees associated with a Plan participant's purchase of shares. An eligible employee may deduct a minimum of $40 per month and a maximum of $2,000 per month towards the purchase of shares. On June 17, 2015, the Company filed a registration statement on Form S-8 to register the 250,000 shares of the Company’s Class A common stock related to the Plan.