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Partners' Capital, Equity and Incentive Compensation Plans
 6 Months Ended
Jun. 30, 2021
Equity [Abstract]  
Partners' Capital, Equity and Incentive Compensation Plans 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 June 30, 2021, the Operating Partnership had four classes of limited partnership units outstanding: Series A Preferred Units, Series B Convertible Preferred Units, 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 currently outstanding are now redeemable on a one-for-one exchange rate 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 based on formulas contained in the partnership agreement.
QTS Realty Trust, Inc.
In connection with its initial public offering on October 13, 2013 ("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 our 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”), pursuant to which the Company may issue shares of Class A common stock pursuant to various types of awards. As of June 30, 2021, 7.9 million shares of Class A common stock were authorized and available for issuance under the 2013 Equity Incentive Plan.
In March 2019, the Compensation Committee completed a redesign of the long-term incentive program for executive officers to include the following types of awards:
a.Performance-Based FFO Unit Awards — performance-based restricted share unit awards, which may be earned based on Operating Funds From Operations (“OFFO”) per diluted share measured over a two-year performance period (performance-based FFO units or “FFO Units”), with two-thirds of the earned FFO Units vesting and settling in shares of Class A common stock on the date that performance is certified following the end of the performance period and the remaining one-third of the FFO Units vesting and settling at the end of three years from the award grant date. The number of shares of Class A common stock subject to the awards that can be earned ranges from 0% to 200% of the target award based on actual performance over the performance period, with the number of shares to be determined based on a linear interpolation basis between threshold and target and target and maximum performance.
b.Performance-Based Relative TSR Unit Awards — performance-based restricted share unit awards, which may be earned based on total stockholder return (“TSR”) as compared to the MSCI U.S. REIT Index (the “Index”) over a three-year performance period (the performance-based relative TSR units or “TSR Units,” and together with the FFO Units, “performance units”). The number of shares of Class A common stock subject to the awards that can be earned ranges from 0% to 200% of the target award based on our TSR compared to the Index. In addition, award payouts will be determined on a linear interpolation basis between threshold and target and target and maximum performance; and will be capped at the target performance level if our TSR is negative.
c.Restricted Stock Awards — the restricted stock awards vest as to 33% of the shares subject to awards on the first anniversary of the date of grant and as to 8.375% of the shares subject to the awards each quarter-end thereafter, subject to the named executive officer’s continued service as an employee as of each vesting date.

In connection with the closing of the Merger Transactions, immediately prior to the effective time of the merger (the “Effective Time”), each FFO Unit and TSR Unit that is outstanding will automatically become earned and vested with respect to that number of shares of Class A common stock subject to such performance units (including any related accrued dividend equivalents awarded with respect to performance units that were deemed reinvested in additional shares of Class A common stock in accordance with the applicable award agreement governing such units) determined in accordance with the terms of the applicable award agreement, which, in the case of TSR Units, is based on the achievement of the applicable performance goals as measured from the beginning of the applicable performance period through the date immediately prior to the closing date, and, in the case of FFO Units, is deemed earned at the target number of shares subject to the award (each such earned and vested performance unit (including any related dividend equivalents) we refer to as an “earned unit”); provided, however, (i) the FFO Units granted in 2020 will become earned and vest at the maximum level of performance (unless, prior to the Effective Time, Parent and the Company determine, in good faith and taking into account the effects of the occurrence of the transactions contemplated by the Merger Agreement, that, on a pro forma basis, the applicable performance goals would be satisfied at less than maximum performance, in which case such FFO Units will vest based on such actual pro forma performance achievement (but in no event less than target performance)), (ii) any performance units (including any related dividend equivalents) for which the level of performance has previously been determined and certified prior to the date of the Merger Agreement and that remain subject to service-based vesting conditions will, effective immediately prior to the Effective Time, automatically vest and be treated for purposes of the Merger Agreement as an earned unit and (iii) the TSR Units granted to the Company’s Chairman and Chief Executive Officer Chad L. Williams will be earned and vested at the greater of (x) target level or (y) the level of actual achievement of the applicable performance goals set forth in the applicable award agreement as measured from the beginning of the applicable performance period through the date immediately prior to the closing date. At the Effective Time, the earned units will be cancelled in exchange for a cash payment (without interest) in an amount equal to the number of earned units multiplied by $78 (less any applicable income and employment withholding taxes). Any performance units that do not become earned will be cancelled for no consideration immediately prior to the Effective Time.
The following is a summary of award activity under the 2010 Equity Incentive Plan and 2013 Equity Incentive Plan and related information for the six months ended June 30, 2021 (unaudited):
2010 Equity Incentive Plan2013 Equity Incentive Plan
Numbers of Class O unitsWeighted average exercise priceWeighted average fair valueOptionsWeighted average exercise priceWeighted average fair valueRestricted Stock / Deferred StockWeighted average fair value at grant date
TSR Units (2)
Weighted average fair value at grant date
FFO Units (2)
Weighted average fair value at grant date
Outstanding at December 31, 202075,435 $25.00 $6.11 1,936,407 $38.55 $7.26 416,496 $52.20 168,552 $66.90 132,267 $51.45 
Granted— — — 96,366 59.06 10.53 271,625 59.09 105,402 64.72 105,402 59.06 
Exercised/Vested (1)
— — — (51,220)38.63 7.91 (171,236)52.63 — — — — 
Cancelled/Expired— — — — — — (4,305)57.38 — — — — 
Outstanding at June 30, 202175,435 $25.00 $6.11 1,981,553 $39.55 $7.40 512,580 $55.66 273,954 $66.06 237,669 $54.82 
____________________
(1)Represents (i) Class O units which were converted to Class A units, (ii) options to purchase Class A common stock which were exercised, and (iii) 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, with respect to the applicable column.
(2)Unmeasured TSR Units and FFO Units are presented in the table herein at 100% of target.
The assumptions and fair values for restricted stock and options to purchase shares of Class A common stock granted for the six months ended June 30, 2021 are included in the following table on a per unit basis (unaudited). Options to purchase shares of Class A common stock were valued using the Black-Scholes model and TSR Units were valued using a Monte-Carlo simulation that leveraged similar assumptions to those used to value the Class A common stock and FFO Units.
Six Months Ended June 30, 2021
Fair value of FFO Units and restricted stock granted$59.06 -$64.20 
Fair value of TSR Units granted$64.72 
Fair value of options granted$3.79 -$11.36 
Expected term (years)0.4-5.5
Expected volatility28 %-31 %
Expected dividend yield3.39 %
Expected risk-free interest rates0.06 %-0.90 %
The following tables summarize information about awards outstanding as of June 30, 2021 (unaudited).
Operating Partnership Awards Outstanding
Exercise pricesAwards outstandingWeight average remaining vesting period 
(years)
Class O Units$25.00 75,435 —
Total Operating Partnership awards outstanding
75,435 

QTS Realty Trust, Inc. Awards Outstanding
Exercise pricesAwards outstandingWeight average remaining vesting period 
(years)
Restricted stock—512,580 0.9
TSR Units—273,954 0.9
FFO Units—237,669 0.6
Options to purchase Class A common stock$21.00 -$59.06 1,981,553 0.7
Total QTS Realty Trust, Inc. awards outstanding3,005,756 
Any awards outstanding as of the end of the period have been valued as of the grant date and generally vest ratably over a defined service period. As of June 30, 2021, all restricted Class A common stock, TSR Units, and FFO Units outstanding were unvested and approximately 0.1 million options to purchase Class A common stock were outstanding and unvested. As of June 30, 2021, we had $43.8 million of unrecognized equity-based compensation expense which will be recognized over a remaining weighted-average vesting period of approximately nine months or at the Effective Time. The total intrinsic value of Class O units and options to purchase Class A common stock outstanding at June 30, 2021 was $79.0 million.

Further, pursuant to the Merger Agreement, the Company has suspended the 2020 Amended and Restated QTS Realty Trust, Inc. Employee Stock Purchase Plan (the “Company ESPP”) and no new offering period shall be commenced thereunder unless and until the Merger Agreement is terminated. Subject to the consummation of the Company merger, the Company ESPP shall terminate immediately prior to the Effective Time. Except as otherwise required by the Merger Agreement, applicable law, or an existing Company benefit arrangement, or as permitted by the Merger Agreement or consented to by Parent, the Company is restricted from entering into, adopting, amending in any material respects or terminating any agreements, arrangements, plans or policies related to employee benefits.
Dividends and Distributions
The following tables present quarterly cash dividends and distributions paid to our common and preferred stockholders for the six months ended June 30, 2021 and 2020 (unaudited):
Six Months Ended June 30, 2021
Record DatePayment DatePer Share RateAggregate Dividend/Distribution Amount (in millions)
Common Stock
March 19, 2021April 6, 2021$0.50 $35.7 
December 22, 2020January 7, 2021$0.47 33.4
$69.1 
Series A Preferred Stock
March 31, 2021April 15, 2021$0.45 $1.9 
December 31, 2020January 15, 2021$0.45 1.9
$3.8 
Series B Preferred Stock
March 31, 2021April 15, 2021$1.63 $5.1 
December 31, 2020January 15, 2021$1.63 5.1
$10.2 

Six Months Ended June 30, 2020
Record DatePayment DatePer Share RateAggregate Dividend/Distribution Amount (in millions)
Common Stock
March 20, 2020April 7, 2020$0.47 $31.5 
December 20, 2019January 7, 2020$0.44 28.6
$60.1 
Series A Preferred Stock
March 31, 2020April 15, 2020$0.45 $1.9 
December 31, 2019January 15, 2020$0.45 1.9
$3.8 
Series B Preferred Stock
March 31, 2020April 15, 2020$1.63 $5.1 
December 31, 2019January 15, 2020$1.63 5.1
$10.2 
Additionally, subsequent to June 30, 2021, we paid the following dividends:
•On July 7, 2021, we paid our regular quarterly cash dividend of $0.50 per common share to stockholders of record as of the close of business on June 18, 2021.
•On July 15, 2021, we paid a quarterly cash dividend of approximately $0.45 per share on our Series A Preferred Stock to holders of Series A Preferred Stock of record as of the close of business on June 30, 2021.
•On July 15, 2021, we paid a quarterly cash dividend of approximately $1.63 per share on our Series B Preferred Stock to holders of Series B Preferred Stock of record as of the close of business on June 30, 2021.
Equity Issuances
Class A Common Stock

In June 2019, we established an “at-the-market” equity offering program (the “Prior ATM Program”) pursuant to which we could issue, from time to time, up to $400 million of our Class A common stock, $0.01 par value per share (the “Class A common stock”), which could include shares to be sold on a forward basis. During the three months ended March 31, 2021, we settled the remaining shares subject to the forward sale agreements under the Prior ATM Program.

Because we had utilized substantially all of the offering capacity of the Prior ATM Program, in May 2020, we established a new “at-the-market” equity offering program (the “Current ATM Program”) pursuant to which we may issue, from time to time, up to $500 million of our Class A common stock, which may include shares to be sold on a forward basis. As under the Prior ATM Program, the use of forward sales under the Current ATM Program generally allows us to lock in a price on the sale of shares of our Class A common stock when sold by the forward sellers, but defer receiving the net proceeds from such sales until the shares of our Class A common stock are issued at settlement on a later date. Pursuant to the Merger Agreement, the Company is restricted from issuing common stock under the ATM Program.
In June 2020, we conducted an underwritten offering of 4,400,000 shares of our common stock on a forward basis.

During the three months ended June 30, 2021, we settled 8.2 million shares sold on a forward basis, representing all remaining outstanding forward stock sales from the Current ATM Program and the June 2020 underwritten offering, generating net proceeds of approximately $490.9 million. We have concluded that the forward sale agreements meet the derivative scope exception for certain contracts involving an entity’s own equity. Our earnings per share dilution resulting from the forward sale agreements, if any, is determined using the two-class method.
Preferred Stock

As of June 30, 2021, we had outstanding 4,280,000 shares of 7.125% Series A Cumulative Redeemable Perpetual Preferred Stock ("Series A Preferred Stock") with a liquidation preference of $25.00 per share as well as 3,162,500 shares of 6.50% Series B Cumulative Convertible Perpetual Preferred Stock (“Series B Preferred Stock”) with a liquidation preference of $100.00 per share. Dividends on the Series A Preferred Stock and Series B Preferred Stock are payable quarterly in arrears on or about the 15th day of each January, April, July and October.

The Series A Preferred Stock does not have a stated maturity date. On and after March 15, 2023, the Company may, at its option, redeem the Series A Preferred Stock, in whole, at any time, or in part, from time to time, for cash at a redemption price of $25.00 per share, plus any accrued and unpaid dividends (whether or not declared) to, but not including, the date of redemption. Under certain conditions, upon the occurrence of a change of control, we may redeem the Series A Preferred Stock in whole, at any time, or in part, from time to time within 120 days after the occurrence of such event and the holders will have the right to convert their Series A Preferred Stock to Class A common stock in accordance with the terms of the Series A Preferred Stock. On July 30, 2021, and in accordance with the Merger Agreement, we issued a notice of redemption pursuant to which all shares of Series A Preferred Stock that are outstanding following the closing of the Company merger will be redeemed.

The Series B Preferred Stock does not have a stated maturity date. The Series B Preferred Stock is convertible by holders into shares of Class A common stock at any time at the then-prevailing conversion rate. The conversion rate as of June 30, 2021 is 2.1462 shares of the Company’s Class A common stock per share of Series B Preferred Stock. The Series B Preferred Stock is not redeemable by the Company. At any time on or after July 20, 2023, the Company may at its option cause all (but not less than all) outstanding shares of the Series B Preferred Stock to be automatically converted into the Company’s Class A common stock at the then-prevailing conversion rate if the closing sale price of the Company’s Class A common stock is equal to or exceeds 150% of the then-prevailing conversion price for at least 20 trading days in a period of 30 consecutive trading days, including the last trading day of such 30-day period, ending on the trading day prior to the issuance of a press release announcing the mandatory conversion.

On August 2, 2021, the Company issued a notice of fundamental change advising holders that the closing of the Company merger constitutes a “fundamental change” and that pursuant to the Company merger, each outstanding share of Series B Preferred Stock shall be automatically converted into one Series A preferred unit of Merger Sub I, with such Series A preferred units having terms materially the same as the Series B Preferred Stock including that each Series A preferred unit may be converted into cash during the specified period following the partnership merger at the holder’s election in accordance with the terms of such securities.