Partners' Capital, Equity and Incentive Compensation Plans

9 Months Ended

Sep. 30, 2016

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

Partners' Capital, Equity and Incentive Compensation Plans

7. 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 September 30, 2016, the Operating Partnership had two classes of limited partnership units outstanding: Class A units of limited partnership interest (“Class A units”) and Class O LTIP units of limited partnership units (“Class O units”). The Operating Partnership previously had outstanding Class RS LTIP units of limited partnership interest (“Class RS units”) which have all been converted to Class A Units during the three months ended September 30, 2016. The Class A Units are now redeemable at any time. 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.

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 May 2015, the total number of shares available for issuance under the 2013 Equity Incentive Plan was increased 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 nine months ended September 30, 2016(unaudited):  

	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, 2015	1,292,899	$	23.76	$	3.68	39,875	$	22.18	867,882	$	27.80	$	5.56	394,908		$	33.82
Granted	—		—		—	—		—	229,693		45.78		9.91	236,148			45.25
Exercised/Vested	(125,992)		21.45		4.28	—		—	(29,543)		25.70		4.96	(83,139)	(1)		33.07
Released from restriction (2)	—		—		—	(39,875)		22.18	—		—		—	—			—
Cancelled/Expired (3)	—		—		—	—		—	(9,735)		32.14		6.95	(85,820)			33.78
Outstanding at September 30, 2016	1,166,907	$	24.00	$	3.61	—	$	—	1,058,297	$	31.72	$	6.51	462,097		$	39.81

(1) 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.

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

(3) Includes approximately 40,000 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 nine months ended September 30, 2016 are included in the following table on a per unit basis (unaudited). Class O units and options to purchase shares of Class A common stock were valued using the Black-Scholes model.

	Nine Months Ended September 30, 2016
Fair value of restricted stock granted	$45.78-$56.28
Fair value of options granted	$9.57-$9.97
Expected term (years)	5.5-5.9
Expected volatility	30.7-31.3%
Expected dividend yield	3.14%
Expected risk-free interest rates	1.42-1.48%

The following table summarizes information about awards outstanding as of September 30, 2016 (unaudited).

	Operating Partnership Awards Outstanding
	Exercise prices		Awards outstanding	Weighted average remaining vesting period (years)
Class RS Units	$	—	—	—
Class O Units	$	20.00-25.00	1,166,907	0.1
Total Operating Partnership awards outstanding			1,166,907

	QTS Realty Trust, Inc. Awards Outstanding
	Exercise prices		Awards outstanding	Weighted average remaining vesting period (years)
Restricted stock	$	—	462,097	1.8
Options to purchase Class A common stock	$	21.00-45.78	1,058,297	1.0
Total QTS Realty Trust, Inc. awards outstanding			1,520,394

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, 2016 there were 0.1 million, 0.5 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 September 30, 2016, there were no Class RS units outstanding. As of September 30, 2016 the Company had $18.7 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 September 30, 2016 was $80.1 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 nine months ended September 30, 2016 and 2015 (unaudited):

Nine Months Ended September 30, 2016
Record Date	PaymentDate	Per Common Share and Per Unit Rate		Aggregate Dividend/Distribution Amount (in millions)
June 17, 2016	July 6, 2016	$	0.36	$	19.7
March 18, 2016	April 5, 2016		0.36		17.4
December 17, 2015	January 6, 2016		0.32		15.4
				$	52.5

Nine Months Ended September 30, 2015
Record Date	Payment Date	Per Common Share and Per Unit Rate		Aggregate Dividend/Distribution Amount (in millions)
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
				$	39.4

Additionally, on October 5, 2016, the Company paid its regular quarterly cash dividend of $0.36 per common share and per unit in the Operating Partnership to stockholders and unit holders of record as of the close of business on September 20, 2016.

Equity Issuances

In March 2016, QTS filed an automatic shelf registration statement on Form S-3 with the SEC. Effective upon filing, the shelf provides for the potential sale of an unspecified amount of QTS’ Class A common stock, preferred stock, depositary shares representing preferred stock, warrants and rights to purchase QTS common stock or any combination thereof, subject to the ability of QTS to effect offerings on satisfactory terms based on prevailing conditions. Pursuant to this shelf registration, on April 1, 2016, the Company issued 6,325,000 shares of QTS’ Class A common stock at a price of $45.50 per share in an underwritten public offering, including the exercise in full of the underwriters’ option to purchase an additional 825,000 shares. The Company used substantially all of the net proceeds of approximately $276 million to repay amounts outstanding under its unsecured revolving credit facility.

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.