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 December 31, 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 year ended December 31, 2016. The Class A units are now redeemable at any time for cash or shares of Class A common stock of QTS. 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 years ended December 31, 2016, 2015 and 2014:


	2010 Equity Incentive Plan								2013 Equity Incentive Plan
							Weighted					Weighted			Weighted
		Weighted		Weighted			average			Weighted		average			average
	Number of	average		Average fair		Number of	Grant date			average		fair		Restricted	Grant date
	Class O units	exercise price		value		Class RS units	value		Options	exercise price		value		Stock	value

Outstanding at January 1, 2014	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 (1)	(15,750)		20.71		4.75	—		—	(3,000)		21.00		3.52	(25,786)		21.00
Released from restriction (2)	—		—		—	(99,125)		24.94	—		—		—	—		—
Cancelled/Expired (3)	(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 (1)	(222,499)		22.02		4.18	—		—	(23,157)		21.30		3.63	(54,400)		28.37
Released from restriction (2)	—		—		—	(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
Granted	—		—		—	—		—	229,693		45.78		9.91	237,563		45.53
Exercised/Vested (1)	(158,088)		21.56		4.18	—		—	(29,543)		25.70		4.96	(122,136)		33.26
Released from restriction (2)	—		—		—	(39,875)		22.18	—		—		—	—		—
Cancelled/Expired (3)	—		—		—	—		—	(9,735)		32.14		6.95	(95,644)		33.92
Outstanding at December 31, 2016	1,134,811	$	24.06	$	3.62	—	$	—	1,058,297	$	31.72	$	6.51	414,691	$	40.67

(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. This also represents Class O units which were converted to Class A units and Options to purchase Class A common stock which were exercised for their respective columns.

(2)

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

(3)

Includes 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, 2016, 2015 and 2014 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.


	2016		2015		2014
Fair value of restricted stock granted		$45.78-$56.28		$35.81-$37.69		$25.51-$35.51
Fair value of options granted		$9.57-$9.97		$8.00-$8.77		$4.94-$5.98
Expected term (years)		5.5-5.9		5.5-6.1		5.5-6.1
Expected volatility		30.7%-31.3%		33%		33%
Expected dividend yield		3.14%		3.40%-3.57%		4.02%-4.55%
Expected risk-free interest rates		1.42%-1.48%		1.67%-1.94%		1.7%-1.9%

The following tables summarize information about awards outstanding as of December 31, 2016.


	Operating Partnership Awards Outstanding
				Weighted average
			Awards	remaining
	Exercise prices		outstanding	vesting period (years)
Class O Units	$	20.00-25.00	1,134,811	—
Total Operating Partnership awards outstanding			1,134,811


		QTS Realty Trust, Inc. Awards Outstanding
				Weighted average
			Awards	remaining
	Exercise prices		outstanding	vesting period (years)
Restricted stock	$	—	414,691	1.6
Options to purchase Class A common stock	$	21.00-45.78	1,058,297	0.9
Total QTS Realty Trust, Inc. awards outstanding			1,472,988

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, 2016 there were 0.1 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, 2016, there were no Class RS units outstanding. As of December 31, 2016 the Company had $16.2 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, 2016 was $66.9 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, 2016 and 2015:


Year Ended December 31, 2016
				Aggregate
		Per Common Share and		Dividend/Distribution
Record Date	Payment Date	Per Unit Rate		Amount (in millions)
September 20, 2016	October 5, 2016	$	0.36	$	19.7
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
		$	1.40	$	72.2


Year Ended December 31, 2015
				Aggregate
		Per Common Share and		Dividend/Distribution
Record Date	Payment Date	Per Unit Rate		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

Additionally, on January 5, 2017, 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 December 16, 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 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 of directors or by a committee of one or more persons appointed by the board of directors. 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.