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, 2017, 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 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 O units were issued upon grants made under the QualityTech, LP 2010 Equity Incentive Plan (the “2010 Equity Incentive Plan”). Class O units are pari passu with Class A units. Each 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 LTIP units of limited partnership interest. 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, 2017, 2016 and 2015:


	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, 2015	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
Granted	—		—		—	—		—	468,875		50.66		10.32	228,576		49.86
Exercised/Vested (1)	(566,771)		24.60		2.24	—		—	(155,902)		31.89		6.60	(163,048)		40.63
Cancelled/Expired (3)	—		—		—	—		—	(2,000)		37.69		8.77	(98,355)		39.97
Outstanding at December 31, 2017	568,040	$	23.52	$	5.00	—	$	—	1,369,270	$	38.18	$	7.80	381,864	$	46.37

(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 restricted stock and options to purchase shares of Class A common stock granted for the years ended December 31, 2017, 2016 and 2015 are included in the following table on a per unit basis. Options to purchase shares of Class A common stock were valued using the Black-Scholes model.


	2017		2016		2015
Fair value of restricted stock granted		$48.63 - $51.88		$45.78 - $56.28		$35.81 - $37.69
Fair value of options granted		$10.11 - $10.36		$9.57 - $9.97		$8.00 - $8.77
Expected term (years)		5.5 - 5.9		5.5 - 5.9		5.5 - 6.1
Expected volatility		28%		30.7% - 31.3%		33%
Expected dividend yield		3.08%		3.14%		3.40% - 3.57%
Expected risk-free interest rates		2.12% - 2.18%		1.42% - 1.48%		1.67% - 1.94%

The following tables summarize information about awards outstanding as of December 31, 2017.


	Operating Partnership Awards Outstanding
				Weighted average
			Awards	remaining
	Exercise prices		outstanding	vesting period (years)
Class O Units	$	20.00 - 25.00	568,040	—
Total Operating Partnership awards outstanding			568,040


	QTS Realty Trust, Inc. Awards Outstanding
				Weighted average
			Awards	remaining
	Exercise prices		outstanding	vesting period (years)
Restricted stock	$	—	381,864	1.7
Options to purchase Class A common stock	$	21.00 - 50.66	1,369,270	0.8
Total QTS Realty Trust, Inc. awards outstanding			1,751,134

As of December 31, 2017, there were no Class RS units outstanding. Any remaining nonvested awards are valued as of the grant date and generally vest ratably over a defined service period. As of December 31, 2017 there were approximately 0.4 million and 0.6 million nonvested restricted Class A common stock and options to purchase Class A common stock outstanding, respectively. As of December 31, 2017 the Company had $18.1 million of unrecognized equity-based compensation expense which will be recognized over a remaining weighted-average vesting period of approximately 1 year. The total intrinsic value of the awards outstanding at December 31, 2017 was $59.6 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, 2017 and 2016:


Year Ended December 31, 2017
				Aggregate
		Per Common Share and		Dividend/Distribution
Record Date	Payment Date	Per Unit Rate		Amount (in millions)
September 22, 2017	October 5, 2017	$	0.39	$	22.2
June 16, 2017	July 6, 2017		0.39		21.6
March 16, 2017	April 5, 2017		0.39		21.4
December 16, 2016	January 5, 2017		0.36		19.7
		$	1.53	$	84.9


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

Additionally, on January 5, 2018, the Company paid its regular quarterly cash dividend of $0.39 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 5, 2017.

Equity Issuances

In March 2017, the Company established an “at-the-market” equity offering program (the “ATM Program”) pursuant to which the Company may issue, from time to time, up to $300 million of its Class A common stock. During the year ended December 31, 2017, the Company issued 2,036,121 shares of QTS’ Class A common stock under the ATM Program at a weighted average price of $53.88 per share which generated net proceeds of approximately $108.1 million.

QTS Realty Trust, Inc. Employee Stock Purchase Plan

In June 2015, the Company established the QTS Realty Trust, Inc. Employee Stock Purchase Plan (the “2015 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 with the Company paying brokerage commissions and fees associated with such share purchases. The 2015 Plan became effective July 1, 2015. The Company reserved 250,000 shares of its Class A common stock for purchase under the 2015 Plan, which were registered pursuant to a registration statement on Form S-8 filed on June 17, 2015.

On May 4, 2017, the stockholders of the Company approved an amendment and restatement of the Plan (the “2017 Plan”). The 2017 Plan became effective July 1, 2017 and is administered by the Compensation Committee of the board of directors (or by a committee of one or more persons appointed by it or the board of directors). The 2017 Plan permits participants to purchase the Company’s Class A common stock at a discount of up to 10% (as determined by the Compensation Committee). Employees of the Company and its majority-owned subsidiaries who have been employed for at least thirty days and who perform at least thirty hours of service per week for the Company are eligible to participate in the 2017 Plan, excluding any employee who, at any time during which the payroll deductions are made on behalf of participating employees to purchase stocks, owns shares representing five percent or more of the total combined voting power or value of all classes of shares of the Company, or who is a Section 16 officer. Under the 2017 Plan, there are four purchase periods per year, and participants may deduct a minimum of $20 per paycheck and a maximum of $1,000 per paycheck towards the purchase of shares. Shares purchased under the 2017 Plan are subject to a one-year holding period following the purchase date, during which they may not be sold or transferred.