Partners' Capital, Equity and Incentive Compensation Plans

12 Months Ended

Dec. 31, 2013

Equity [Abstract]

Partners' Capital, Equity and Incentive Compensation Plans

9. Partners’ Capital, Equity and Incentive Compensation Plans

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

As of December 31, 2013, 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 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. 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.

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. Under the 2013 Equity Incentive Plan, the Company granted in connection with its IPO, subject to certain vesting requirements, executive officers 108,629 shares of restricted Class A common stock and options to purchase 370,410 shares of Class A common stock to executive officers, directors and certain of its employees. The Company may also issue Class RS units or Class O units pursuant to the 2013 Equity Incentive Plan.

For the year ended December 31, 2013, 224,244 Class O units were granted, 73,440 Class O units were forfeited and 5,000 Class RS units converted into Class A units. Options to purchase 2,500 shares of Class A common stock were forfeited during the year ended December 31, 2013.

The following is a summary of award activity under the 2013 and 2010 Equity Incentive Plans and related information for 2013, 2012 and 2011:

	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 January 1, 2011		592,068		$	20.00	$	4.41		50,000		$	—		—		$	—	$	—		—	$	—
Granted		114,676		$	20.00	$	4.18		—		$	—		—		$	—	$	—		—	$	—
Exercised		—			—				—			—		—			—				—		—
Released from restriction		—			—				—			—		—			—				—		—
Cancelled/Expired		(7,376	)		—		4.41		—			—		—			—		—		—		—
Outstanding at December 31, 2011		699,368		$	20.00	$	4.38		50,000		$	—		—		$	—	$	—		—	$	—
Granted		908,925		$	25.00	$	1.99		150,000		$	—		—		$	—	$	—		—	$	—
Exercised		—			—				—			—		—			—				—		—
Released from restriction		—			—				(21,250	)		—		—			—				—		—
Cancelled/Expired		(136,350	)		—		4.41		—			—		—			—		—		—		—
Outstanding at December 31, 2012		1,471,943		$	23.09	$	2.84		178,750		$	—		—		$	—	$	—		—	$	—
Granted		224,244		$	25.00	$	10.62		—		$	—		370,410		$	21.00	$	3.50		108,629	$	21.00
Exercised		—			—				—			—		—			—				—		—
Released from restriction		—			—				(5,000	)		—		—			—				—		—
Cancelled/Expired		(73,440	)		—		5.31		—			—		(2,500	)		—		3.52		—		—
Outstanding at December 31, 2013		1,622,747		$	23.44	$	3.84		173,750		$	—		367,910		$	21.00	$	3.50		108,629	$	21.00

The assumptions and fair values for Class O units, Class RS units, restricted stock and options to purchase shares of Class A common stock granted for the years ended December 31, 2013, 2012 and 2011 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.

	2013			2012			2011
Fair value of Class RS Units granted	$	—		$	7.15		$	6.95
Fair value of Class O Units granted	$	10.26-10.92		$	1.79-2.32		$	2.94
Fair value of Restricted stock granted	$	21.00		$	—		$	—
Fair value of options granted	$	3.45-3.52		$	—		$	—
Expected term (years)		5.5-7.0			4			4
Expected volatility		32%-40	%		55	%		60	%
Expected Dividend yield		5.5	%		0	%		0	%
Expected Risk-free interest rates		1.4-1.8	%		0.17	%		0.61	%

The following table summarizes information about awards outstanding as of December 31, 2013.

	Operating Partnership Awards Outstanding
	Exercise prices		Awards outstanding		Weighted average remaining vesting period (years)
Class RS Units	$	—		173,750		3
Class O Units	$	20-25		1,622,747		3
Total Operating Partnership awards outstanding				1,796,497
	QTS Realty Trust, Inc. Awards Outstanding
	Exercise prices		Awards outstanding		Weighted average remaining vesting period (years)
Restricted stock	$	—		108,629		4
Options to purchase Class A common stock	$	21		367,910		3
Total QTS Realty Trust, Inc awards outstanding				476,539

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, 2013 nonvested awards outstanding were 1.1 million and 0.1 million for the Class O units and Class RS units, respectively. Class O units were not included in the Statements of Changes in Partners’ (Deficit) Capital. As of December 31, 2013 the Company had $8.3 million of unrecognized equity-based compensation expense which will be recognized over the remaining vesting period or approximately three years. The total intrinsic value of the awards outstanding at December 31, 2013 was $9.0 million. As of December 31, 2013, vested awards outstanding included 0.6 million of Class O units with a weighted average fair value per unit of $3.33 and 0.1 million of Class RS units with a weighted average fair value per unit of $7.15.

On August 14, 2013, the Operating Partnership made a distribution to its partners in an aggregate amount of $7.6 million. In January 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.