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Table of Contents

FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from___________to___________
Commission File Number 001-36109
__________________________________________________________
QTS Realty Trust, Inc.
(Exact name of registrant as specified in its charter)
__________________________________________________________
Maryland
(State or other jurisdiction of
incorporation or organization)

12851 Foster StreetOverland ParkKansas
(Address of principal executive offices)

46-2809094
(I.R.S. Employer
Identification No.)

66213
(Zip Code)
(913312-5503
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
__________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Trading SymbolName of each exchange on which registered:
Class A common stock, $0.01 par valueQTSNew York Stock Exchange
Preferred Stock, 7.125% Series A Cumulative Redeemable Perpetual, $0.01 par valueQTS PRANew York Stock Exchange
Preferred Stock, 6.50% Series B Cumulative Convertible Perpetual, $0.01 par valueQTS PRBNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  x     No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 
Yes  x     No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes       No  x
There were 68,777,469 shares of Class A common stock, $0.01 par value per share, and 124,481 shares of Class B common stock, $0.01 par value per share, of QTS Realty Trust, Inc. outstanding on April 29, 2021.
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QTS Realty Trust, Inc.
Form 10-Q
For the Quarterly Period Ended March 31, 2021
INDEX
Page
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
QTS REALTY TRUST, INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share data)
March 31, 2021December 31, 2020
(unaudited)
ASSETS
Real Estate Assets
Land$164,822 $165,109 
Buildings, improvements and equipment2,965,488 2,839,261 
Less: Accumulated depreciation(745,237)(702,944)
2,385,073 2,301,426 
Construction in progress1,119,749 1,028,765 
Real Estate Assets, net3,504,822 3,330,191 
Investments in unconsolidated entity25,858 22,608 
Operating lease right-of-use assets, net49,851 51,342 
Cash and cash equivalents14,652 22,775 
Rents and other receivables, net124,392 107,563 
Acquired intangibles, net64,934 68,090 
Deferred costs, net64,333 63,689 
Prepaid expenses14,147 10,253 
Goodwill173,843 173,843 
Other assets, net48,458 48,218 
TOTAL ASSETS$4,085,290 $3,898,572 
LIABILITIES
Unsecured term loans and revolver, net$1,305,167 $1,335,241 
Senior notes, net of debt issuance costs492,775 492,534 
Finance leases42,525 41,718 
Operating lease liabilities56,327 58,005 
Accounts payable and accrued liabilities202,552 187,270 
Dividends and distributions payable41,686 39,373 
Advance rents, security deposits and other liabilities23,506 19,850 
Derivative liabilities36,751 53,722 
Deferred income taxes826 810 
Deferred income93,495 85,351 
TOTAL LIABILITIES2,295,610 2,313,874 
EQUITY
7.125% Series A cumulative redeemable perpetual preferred stock: $0.01 par value (liquidation preference $25.00 per share), 4,600,000 shares authorized, 4,280,000 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively
103,212 103,212 
6.50% Series B cumulative convertible perpetual preferred stock: $0.01 par value (liquidation preference $100.00 per share), 3,162,500 shares authorized, issued and outstanding as of March 31, 2021 and December 31, 2020, respectively
304,223 304,223 
Common stock: $0.01 par value, 450,133,000 shares authorized, 68,962,873 and 64,580,118 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively
690 646 
Additional paid-in capital1,834,309 1,622,857 
Accumulated other comprehensive loss(35,181)(50,451)
Accumulated dividends in excess of earnings(536,031)(504,313)
Total stockholders’ equity1,671,222 1,476,174 
Noncontrolling interests118,458 108,524 
TOTAL EQUITY1,789,680 1,584,698 
TOTAL LIABILITIES AND EQUITY$4,085,290 $3,898,572 
See accompanying notes to financial statements.
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QTS REALTY TRUST, INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands except per share data)
Three Months Ended March 31,
20212020
Revenues:
Rental$144,308 $120,081 
Other4,424 6,211 
Total revenues148,732 126,292 
Operating expenses:
Property operating costs46,284 40,781 
Real estate taxes and insurance5,022 3,911 
Depreciation and amortization55,506 45,070 
General and administrative23,641 20,683 
Transaction, integration, and impairment costs1,516 216 
Total operating expenses131,969 110,661 
Operating income16,763 15,631 
Other income and expense:
Interest expense(8,148)(7,162)
Other income 159 
Equity in net loss of unconsolidated entity(559)(677)
Income before taxes8,056 7,951 
Tax benefit (expense)(138)169 
Net income7,918 8,120 
Net income attributable to noncontrolling interests(79)(110)
Net income attributable to QTS Realty Trust, Inc.$7,839 $8,010 
Preferred stock dividends(7,045)(7,045)
Net income attributable to common stockholders$794 $965 
Net loss per share attributable to common shares
Basic$(0.07)$(0.01)
Diluted$(0.07)$(0.01)
See accompanying notes to financial statements.
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QTS REALTY TRUST, INC.
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited and in thousands)
Three Months Ended March 31,
20212020
Net income$7,918 $8,120 
Other comprehensive income (loss):
Foreign currency translation adjustment loss(158)(223)
Increase (decrease) in fair value of derivative contracts17,253 (36,715)
Reclassification of other comprehensive income to utilities expense(66)354 
Reclassification of other comprehensive income to interest expense3,375 758 
Comprehensive income (loss)28,322 (27,706)
Comprehensive (income) loss attributable to noncontrolling interests(2,558)2,831 
Comprehensive income (loss) attributable to QTS Realty Trust, Inc.$25,764 $(24,875)

See accompanying notes to financial statements.
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QTS REALTY TRUST, INC.
INTERIM CONSOLIDATED STATEMENTS OF EQUITY
(unaudited and in thousands)
The consolidated statement of equity for the three months ended March 31, 2021:
Preferred StockCommon stockAdditional
paid-in capital
Accumulated other
comprehensive
income (loss)
Accumulated
dividends in
excess of earnings
Total
stockholders'
equity
Noncontrolling
interests
Total
SharesAmountSharesAmount
Balance January 1, 20217,443 $407,435 64,580 $646 $1,622,857 $(50,451)$(504,313)$1,476,174 $108,524 $1,584,698 
Net share activity through equity award plan— — 426 4 50 — — 54 5 59 
Conversion of Class A Partnership units to Class A common stock— — 92 1 2,040 — — 2,041 (2,041) 
Increase in fair value of derivative contracts— — — — — 15,414 — 15,414 1,839 17,253 
Foreign currency translation adjustments— — — — — (144)— (144)(14)(158)
Equity-based compensation expense— — — — 6,237 — — 6,237 619 6,856 
Proceeds net of fees from settlement of forward shares— — 3,865 39 203,125 — — 203,164 12,682 215,846 
Dividends declared on Series A Preferred Stock— — — — — — (1,906)(1,906)— (1,906)
Dividends declared on Series B Convertible Preferred Stock— — — — — — (5,139)(5,139)— (5,139)
Dividends declared to common stockholders— — — — — — (32,512)(32,512)— (32,512)
Dividends declared to noncontrolling interests— — — — — — —  (3,235)(3,235)
Net Income— — — — — — 7,839 7,839 79 7,918 
Balance March 31, 20217,443$407,435 68,963$690 $1,834,309 $(35,181)$(536,031)$1,671,222 $118,458 $1,789,680 

The consolidated statement of equity for the three months ended March 31, 2020:
Preferred StockCommon stockAdditional
paid-in capital
Accumulated other
comprehensive
income (loss)
Accumulated
dividends in
excess of earnings
Total
stockholders'
equity
Noncontrolling
interests
Total
SharesAmountSharesAmount
Balance January 1, 20207,443 $407,435 58,228 $582 $1,330,444 $(24,642)$(376,002)$1,337,817 $106,634 $1,444,451 
Net share activity through equity award plan— — 240 3 (1,312)— — (1,309)(149)(1,458)
Decrease in fair value of derivative contracts— — — — — (33,155)— (33,155)(3,560)(36,715)
Foreign currency translation adjustments— — — — — (201)— (201)(22)(223)
Equity-based compensation expense— — — — 4,377 — — 4,377 498 4,875 
Proceeds net of fees from settlement of forward shares— — 1,930 19 78,516 — — 78,535 4,682 83,217 
Dividends declared on Series A Preferred Stock— — — — — — (1,906)(1,906)— (1,906)
Dividends declared on Series B Convertible Preferred Stock— — — — — — (5,139)(5,139)— (5,139)
Dividends declared to common stockholders— — — — — — (28,393)(28,393)— (28,393)
Dividends declared to noncontrolling interests— — — — — — —  (3,133)(3,133)
Net income— — — — — — 8,010 8,010 110 8,120 
Balance March 31, 20207,443 $407,435 60,398 $604 $1,412,025 $(57,998)$(403,430)$1,358,636 $105,060 $1,463,696 

See accompanying notes to financial statements.
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QTS REALTY TRUST, INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited and in thousands)
Three Months Ended March 31,
20212020
Cash flow from operating activities:
Net income$7,918 $8,120 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization53,825 43,373 
Amortization of above and below market leases10 90 
Amortization of deferred loan costs1,130 987 
Distributions from unconsolidated entity569 300 
Equity in net loss of unconsolidated entity559 677 
Equity-based compensation expense6,856 4,875 
Bad debt expense1,013 3,719 
Deferred tax expense (benefit)18 (270)
Foreign currency remeasurement income (159)
Changes in operating assets and liabilities
Rents and other receivables, net(17,933)2,888 
Prepaid expenses(3,914)(3,164)
Due to/from affiliates, net(4,095)(4,428)
Other assets(445)(238)
Accounts payable and accrued liabilities2,610 7,173 
Advance rents, security deposits and other liabilities3,771 6,727 
Deferred income8,203 392 
Net cash provided by operating activities60,095 71,062 
Cash flow from investing activities:
Acquisitions, net of cash acquired(401)(1,797)
Additions to property and equipment(214,279)(171,218)
Net cash used in investing activities(214,680)(173,015)
Cash flow from financing activities:
Credit facility proceeds253,000 212,917 
Credit facility repayments(280,000) 
Payment of deferred financing costs (5)
Payment of preferred stock dividends(7,045)(7,045)
Payment of common stock dividends(30,352)(25,627)
Distribution to noncontrolling interests(3,082)(2,934)
Proceeds from exercise of stock options1,979 808 
Payment of tax withholdings related to equity-based awards(1,435)(2,293)
Principal payments on finance lease obligations(662)(620)
Mortgage principal debt repayments (12)
Common stock issuance proceeds, net of costs215,923 83,260 
Net cash provided by financing activities148,326 258,449 
Effect of foreign currency exchange rates on cash and cash equivalents(1,864)(192)
Net change in cash and cash equivalents(8,123)156,304 
Cash and cash equivalents, beginning of period22,775 15,653 
Cash and cash equivalents, end of period$14,652 $171,957 

See accompanying notes to financial statements.
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QTS REALTY TRUST, INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW (continued)
(unaudited and in thousands)
Three Months Ended March 31,
20212020
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest$8,801 $9,370 
Noncash investing and financing activities:
Accrued capital additions$138,259 $125,750 
Net increase (decrease) in other assets/liabilities related to change in fair value of derivative contracts$17,253 $(35,097)
Accrued equity issuance costs$75 $44 
Accrued preferred stock dividend$5,938 $5,938 
See accompanying notes to financial statements.
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QTS REALTY TRUST, INC.
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
QTS Realty Trust, Inc. (“QTS”), through its controlling interest in QualityTech, LP (the “Operating Partnership” and collectively with QTS and its subsidiaries, the “Company,” “we,” “us,” or “our”) and the subsidiaries of the Operating Partnership, is engaged in the business of owning, acquiring, constructing, redeveloping and managing multi-tenant data centers. As of March 31, 2021, our portfolio consisted of 28 owned and leased properties, including a property owned by an unconsolidated entity, with data centers located throughout the United States, Canada and Europe.
QTS elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2013. As a REIT, QTS generally is not required to pay federal corporate income taxes on its taxable income to the extent it is currently distributed to its stockholders.
As of March 31, 2021, QTS owned approximately 91.4% of the interests in the Operating Partnership. Substantially all of QTS’ assets are held by, and all of QTS’ operations are conducted through, the Operating Partnership. QTS’ interest in the Operating Partnership entitles QTS to share in cash distributions from, and in the profits and losses of, the Operating Partnership in proportion to QTS’ percentage ownership. As the sole general partner of the Operating Partnership, QTS generally has the exclusive power under the partnership agreement of the Operating Partnership to manage and conduct the Operating Partnership’s business and QTS’ board of directors manages the Operating Partnership and the Company’s business and affairs.
2. Summary of Significant Accounting Policies
Basis of Presentation – The accompanying financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and in compliance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). These unaudited consolidated financial statements and related notes should be read in conjunction with the audited consolidated financial statements and related notes and management’s discussion and analysis included in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 26, 2021. The consolidated balance sheet data included herein as of December 31, 2020 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.
As outlined in our Annual Report on Form 10-K for the year ended December 31, 2020, the Operating Partnership meets the definition and criteria of a variable interest entity (“VIE”) in accordance with Accounting Standards Codification (“ASC”) Topic 810 Consolidation, and the Company is the primary beneficiary of the VIE. The Company’s only material asset is its ownership interest in the Operating Partnership, and consequently, all of its assets and liabilities represent those assets and liabilities of the Operating Partnership. The Company’s debt is an obligation of the Operating Partnership where the creditors may have recourse, under certain circumstances, against the credit of the Company.
Use of Estimates – The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of fixed assets, allowances for doubtful accounts and deferred tax assets and the valuation of derivatives, real estate assets, acquired intangible assets and certain accruals. The impacts of the COVID-19 pandemic increases uncertainty, which has reduced our ability to use past results to estimate future performance. Accordingly, our estimates and judgments may be subject to greater volatility than has been the case in the past.
Principles of Consolidation – The consolidated financial statements of QTS Realty Trust, Inc. include the accounts of QTS Realty Trust, Inc. and its controlled subsidiaries. All significant intercompany accounts and transactions have been eliminated in the financial statements.
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We evaluate our investments in less than wholly owned entities to determine whether they should be recorded on a consolidated basis. The percentage of ownership interest in the entity, an evaluation of control and whether a VIE exists are all considered in our consolidation assessment. Investments in real estate entities which we have the ability to exercise significant influence, but do not have financial or operating control, are accounted for using the equity method of accounting. Accordingly, our share of the earnings or losses of these entities is included in consolidated net income (loss).
Variable Interest Entities (VIEs) – We determine whether an entity is a VIE and, if so, whether it should be consolidated by utilizing judgments and estimates that are inherently subjective. The determination of whether an entity in which we hold a direct or indirect variable interest is a VIE is based on several factors, including whether the entity’s total equity investment at risk upon inception is sufficient to finance the entity’s activities without additional subordinated financial support. We make judgments regarding the sufficiency of the equity at risk based first on a qualitative analysis, and then a quantitative analysis, if necessary.
We analyze any investments in VIEs to determine if we are the primary beneficiary. In evaluating whether we are the primary beneficiary, we evaluate our direct and indirect economic interests in the entity. Determining which reporting entity, if any, is the primary beneficiary of a VIE is primarily a qualitative approach focused on identifying which reporting entity has both (1) the power to direct the activities of a VIE that most significantly impact such entity’s economic performance and (2) the obligation to absorb losses or the right to receive benefits from such entity that could potentially be significant to such entity. Performance of that analysis requires the exercise of judgment.
We consider a variety of factors in identifying the entity that holds the power to direct matters that most significantly impact the VIE’s economic performance including, but not limited to, the ability to direct financing, leasing, construction and other operating decisions and activities. In addition, we consider the rights of other investors to participate in those decisions, to replace the manager and to sell or liquidate the entity. We determine whether we are the primary beneficiary of a VIE at the time we become involved with a variable interest entity and reconsider that conclusion upon a reconsideration event. As of March 31, 2021, we had one unconsolidated entity that was considered a VIE for which we are not the primary beneficiary. Our maximum exposure to losses associated with this VIE is limited to our net investment, which was approximately $25.9 million as of March 31, 2021.
Real Estate Assets – Real estate assets are reported at cost. All capital improvements for the income-producing properties that extend their useful lives are capitalized to individual property improvements and depreciated over their estimated useful lives. Depreciation for real estate assets is generally provided on a straight-line basis over 40 years from the date the property was placed in service. Property improvements are depreciated on a straight-line basis over the life of the respective improvement ranging from 20 to 40 years from the date the components were placed in service. Leasehold improvements are depreciated over the lesser of 20 years or through the end of the respective life of the lease. Repairs and maintenance costs are expensed as incurred. For the three months ended March 31, 2021, depreciation expense related to real estate assets and non-real estate assets was $42.7 million and $2.9 million, respectively, for a total of $45.6 million. For the three months ended March 31, 2020, depreciation expense related to real estate assets and non-real estate assets was $32.3 million and $3.4 million, respectively, for a total of $35.7 million. We capitalize certain real estate development costs, including internal costs incurred in connection with development. The capitalization of costs during the construction period (including interest and related loan fees, property taxes and other direct and indirect project costs) begins when development efforts commence and ends when the asset is ready for its intended use. The capitalization of internal costs increases construction in progress recognized during development of the related property and the cost of the real estate asset when placed into service and such costs are depreciated over its estimated useful life. Capitalization of such costs, excluding interest, aggregated to $5.5 million and $4.5 million for the three months ended March 31, 2021 and 2020, respectively. Interest is capitalized during the period of development by applying our weighted average effective borrowing rate to the actual development and other capitalized costs paid during the construction period. Interest is capitalized until the property is ready for its intended use. Interest costs capitalized totaled $7.0 million and $8.1 million for the three months ended March 31, 2021 and 2020, respectively.
Acquisitions and Sales – Acquisitions of real estate and other entities are either accounted for as asset acquisitions or business combinations depending on facts and circumstances.
In developing estimates of fair value of acquired assets and assumed liabilities, management analyzes a variety of factors including market data, estimated future cash flows of the acquired operations, industry growth rates, current replacement cost for fixed assets and market rate assumptions for contractual obligations. Such a valuation requires management to make significant estimates and assumptions, particularly with respect to the intangible assets.
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Impairment of Long-Lived Assets, Intangible Assets and Goodwill – We review our long-lived assets, intangible assets and equity method investments for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Recoverability of assets to be held and used is measured by comparison of the carrying amount to the future net cash flows, undiscounted and without interest, expected to be generated by the asset group. If the net carrying value of the asset group exceeds the value of the undiscounted cash flows, the fair value of the asset group is assessed and may be considered impaired. An impairment loss is recognized based on the excess of the carrying amount of the impaired asset over its fair value. No impairment losses were recorded for the three months ended March 31, 2021 and March 31, 2020.
The fair value of goodwill is the consideration transferred in a business combination which is not allocable to identifiable intangible and tangible assets. Goodwill is subject to at least an annual assessment for impairment. In connection with the goodwill impairment evaluation that we performed as of October 1, 2020, we determined qualitatively that it is not more likely than not that the fair value of our one reporting unit was less than the carrying amount, thus we did not perform a quantitative analysis. As we continue to operate and assess our goodwill at the consolidated level for our single reporting unit and our market capitalization significantly exceeds our net asset value, further analysis was not deemed necessary as of March 31, 2021.
Cash and Cash Equivalents – We consider all demand deposits and money market accounts purchased with a maturity date of three months or less at the date of purchase to be cash equivalents. Our account balances at one or more institutions periodically exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is concentration of credit risk related to amounts on deposit in excess of FDIC coverage. We mitigate this risk by depositing a majority of our funds with several major financial institutions. We also have not experienced any losses and do not believe that the risk is significant.
Revenue Recognition – We derive our revenues from leases with customers for data center space which include lease components and nonlease revenue components, such as power, tenant recoveries, and managed services. We have elected the available practical expedient under ASC Topic 842, Leases, to combine our nonlease revenue components that have the same pattern of transfer as the related operating lease component into a single combined lease component. The single combined component is accounted for under ASC Topic 842 if the lease component is the predominant component and is accounted for under ASC Topic 606 if the nonlease components are the predominant components. In our contracts, the single combined component is accounted for under ASC Topic 842 as the lease component is the predominant component.
A description of each of our disaggregated revenue streams is as follows:
Rental Revenue
Our leases with customers are classified as operating leases and rental revenue is recognized on a straight-line basis over the customer lease term. Occasionally, customer leases include options to extend or terminate the lease agreements. We do not include any of these extension or termination options in a customer’s lease term for lease classification purposes or recognizing rental revenue unless it is reasonably certain the customer will exercise these extension or termination options.
Rental revenue also includes revenue from power delivery on fixed power arrangements, whereby customers are billed and pay a fixed monthly fee per committed available amount of connected power. These fixed power arrangements require us to provide a series of distinct services and to stand ready to deliver the power over the contracted term which is co-terminus with the lease. Customer fixed power arrangements have the same pattern of transfer over the lease term as the lease component and are therefore combined with the lease component to form a single lease component that is recognized over the term of the lease on a straight-line basis.
In addition, rental revenue includes straight-line rent. Straight-line rent represents the difference in rents recognized during the period versus amounts contractually due pursuant to the underlying leases and is recorded as deferred rent receivable/payable in the consolidated balance sheets. For lease agreements that provide for scheduled rent increases, rental income is recognized on a straight-line basis over the non-cancellable term of the leases, which commences when control of the space has been provided to the customer. The amount of the straight-line rent receivable on the balance sheet included in rents and other receivables, net was $71.0 million and $63.6 million as of March 31, 2021 and December 31, 2020, respectively.
Rental revenue also includes amortization of set-up fees which are amortized over the term of the respective lease as discussed below in the "Deferred Income" section.
Variable Lease Revenue from Recoveries
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Certain customer leases contain provisions under which customers reimburse us for power and cooling-related charges as well as a portion of the property’s real estate taxes, insurance and other operating expenses. Recoveries of power and cooling-related expenses relate specifically to our variable power arrangements, whereby customers pay variable monthly fees for the specific amount of power utilized at the current utility rates. Our performance obligation is to stand ready to deliver power over the life of the customer contract up to a contracted power capacity. Customers have the flexibility to increase or decrease the amount of power consumed, and therefore sub-metered power revenue is constrained at contract inception. The reimbursements are included in revenue as recoveries from customers and are recognized each month as the uncertainty related to the consideration is resolved (i.e. we provide power to our customers) and customers utilize the power. Reimbursement of real estate taxes, insurance, common area maintenance, or other operating expenses are accounted for as variable payments under lease guidance pursuant to the practical expedient and are recognized as revenue in the period that the expenses are recognized. Variable lease revenue from recoveries discussed above, including power, common area maintenance or other operating costs, have the same pattern of transfer over the lease term as the lease component and are therefore combined with the lease component to form a single lease component. Variable lease revenue from recoveries is included within the “rental” line item on the statements of operations.
Other Revenue
Other revenue primarily consists of revenue from our managed service offerings, as well as revenue earned from partner channel, management and development fees. We, through our taxable REIT subsidiaries (“TRS”), may provide use of our managed services to our customers on an individual or combined basis. In our managed services offering, the TRS’s performance obligation is to provide services (e.g. cloud hosting, data backup, data storage or data center personnel labor hours) to facilitate a fully integrated information technology (“IT”) outsourcing environment over a contracted term. Although underlying services may vary, over the contracted term monthly service offerings are substantially the same and we account for the services as a series of distinct services in accordance with ASC Topic 606. Service fee revenue is recognized as the revenue is earned, which generally coincides with the services being provided. As we have the right to consideration from customers in an amount that corresponds directly with the value to the customer of the TRS’s performance of providing continuous services, we recognize monthly revenue for the amount invoiced.
With respect to the transaction price allocated to remaining performance obligations within our managed service contracts, we have elected to use the optional exemption provided by ASC Topic 606 whereby we are not required to estimate the total transaction price allocated to remaining performance obligations as we apply the “right-to-invoice” practical expedient. As described above, the nature of our performance obligation in these contracts is to provide monthly services that are substantially the same and accounted for as a series of distinct services. These contracts generally have a remaining term ranging from month-to-month to three years.
Management fees and other revenues are generally received from our unconsolidated entity properties as well as third parties. Management fee revenue is earned based on a contractual percentage of unconsolidated entity property revenue. Development fee revenue is earned on a contractual percentage of hard costs to develop a property. We recognize revenue for these services provided when earned based on the performance criteria in ASC Topic 606, with such revenue recorded in “Other” revenue on the consolidated statements of operations.
Leases as Lessee – We determine if an arrangement is a lease at inception. If the contract is considered a lease, we evaluate leased property to determine whether the lease should be classified as a finance or operating lease in accordance with U.S. GAAP. We periodically enter into finance leases for certain data center facilities, equipment, and fiber optic transmission cabling. Finance lease assets are included within the “Buildings, improvements and equipment” line item of the consolidated balance sheets and finance lease liabilities are included within “Finance leases” line item of the consolidated balance sheets. In addition, we lease certain real estate (primarily land or real estate space) under operating lease agreements with such assets included within the “Operating lease right of use assets, net” line item of the consolidated balance sheets and the associated lease liabilities included within the “Operating lease liabilities” line item on the consolidated balance sheets.
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Right of use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Certain of our leases include variable payments, which may vary based upon changes in facts or circumstances after the start of the lease. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. As our leases as lessee typically do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We assess multiple variables when determining the incremental borrowing rate, such as lease term, payment terms, collateral, economic conditions, and creditworthiness. ROU assets also include any lease payments made and exclude lease incentives. Many of our lease agreements include options to extend the lease, which we do not include in our expected lease terms unless they are reasonably certain to be exercised. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term.
Allowance for Uncollectible Accounts Receivable – We record a provision for uncollectible accounts if a receivable balance relating to lease components from an individual contract is considered by management not to be probable of collection, and this provision is recorded as a reduction to leasing revenues. We also record a general provision of estimated uncollectible tenant receivables based on general probability of collection in accordance with ASC 450-20 Loss Contingencies. This provision is recorded as bad debt expense and recorded within the “Property Operating Costs” line item of the consolidated statements of operations. The aggregate allowance for doubtful accounts on the consolidated balance sheets was $5.3 million and $5.4 million as of March 31, 2021 and December 31, 2020, respectively.
Deferred Income – Deferred income generally results from non-refundable charges paid by the customer at lease inception to prepare their space for occupancy. We record this initial payment, commonly referred to as set-up fees, as a deferred income liability which amortizes into rental revenue over the term of the related lease on a straight-line basis. Deferred income was $93.5 million and $85.4 million as of March 31, 2021 and December 31, 2020, respectively. Additionally, $6.4 million and $3.9 million of deferred income was amortized into revenue for the three months ended March 31, 2021 and 2020, respectively.
Equity-based Compensation – Equity-based compensation costs are measured based upon their estimated fair value on the date of grant or modification and amortized ratably over their respective service periods. We have elected to account for forfeitures as they occur. Equity-based compensation expense was $6.9 million and $4.9 million for the three months ended March 31, 2021 and 2020, respectively.
Segment Information – We manage our business as one operating segment and thus one reportable segment consisting of a portfolio of investments in multiple data centers.
Customer Concentrations – During the three months ended March 31, 2021, one of our customers exceeded 10% of total revenues, representing approximately 11% of total revenues for the three months ended March 31, 2021.
As of March 31, 2021, three of our customers exceeded 5% of trade accounts receivable (which excludes straight-line rent receivables). In aggregate, these three customers accounted for approximately 53% of trade accounts receivable. One of these customers individually exceeded 10% of total trade accounts receivable representing 40% of total trade accounts receivable.
Income Taxes – We provide for income taxes during interim periods based on the estimated effective tax rate for the year and any discrete adjustments. The effective tax rate is subject to change in the future due to various factors such as the operating performance of the taxable REIT subsidiaries, tax law changes, and future business acquisitions or divestitures. The taxable subsidiaries’ effective tax rates were (7.8)% and 13.0% for the three months ended March 31, 2021 and 2020, respectively.
Fair Value Measurements – ASC Topic 820, Fair Value Measurement, emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy is established that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
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Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
As of March 31, 2021, we valued our derivative instruments primarily utilizing Level 2 inputs. See Note 14 – ‘Fair Value of Financial Instruments’ for additional details.
New Accounting Pronouncements
In January 2020, the FASB issued ASU 2020-1, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815, which clarifies the interaction between the accounting for equity securities under Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. ASU 2020-1 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. We adopted this ASU effective January 1, 2021, and the provisions of the standard did not have a material impact on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-4,
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-4 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-4 is optional and may be elected over time as reference rate reform activities occur. The standard is effective for all entities as of March 12, 2020 through December 31, 2022. An entity can elect to apply the amendments as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to that date that the financial statements are available to be issued. In January 2021, the FASB issued ASU 2021-1 Reference Rate Reform (Topic 848): Scope, which updated the standard to clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Beginning in the first quarter of 2020, we have applied the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. We continue to evaluate the impact of the guidance but we do not expect the provisions of the standard will have a material impact on our consolidated financial statements.
We determined all other recently issued accounting pronouncements will not have a material impact on our consolidated financial statements or do not materially apply to our operations.
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3. Real Estate Assets and Construction in Progress
The following is a summary of our cost of owned or leased properties as of March 31, 2021 and December 31, 2020 (in thousands):
As of March 31, 2021 (unaudited):
Property LocationLandBuildings, Improvements and EquipmentConstruction in ProgressTotal Cost
Ashburn, Virginia Campus (1)
$16,476 $391,247 $219,065 $626,788 
Atlanta, Georgia Campus (2)
55,158 771,045 183,319 1,009,522 
Chicago, Illinois9,400 251,676 131,322 392,398 
Dulles, Virginia3,154 55,580 4,220 62,954 
Eemshaven, Netherlands5,153 20,991 47,859 74,003 
Fort Worth, Texas9,079 124,481 3,350 136,910 
Groningen, Netherlands1,821 11,324 3,249 16,394 
Hillsboro, Oregon18,414 47,364 72,033 137,811 
Irving, Texas8,606 409,565 89,516 507,687 
Leased Facilities (3)
 83,180 60 83,240 
Manassas, Virginia Campus (4)
 37 90,947 90,984 
Phoenix, Arizona (5)
  38,063 38,063 
Piscataway, New Jersey7,466 122,599 39,951 170,016 
Princeton, New Jersey20,700 35,267 9 55,976 
Richmond, Virginia2,180 235,381 128,911 366,472 
Sacramento, California1,481 66,304 125 67,910 
Santa Clara, California (6)
 117,522 16,871 134,393 
Suwanee, Georgia (Atlanta-Suwanee)3,521 184,975 7,607 196,103 
Other (7)
2,213 36,950 43,272 82,435 
$164,822 $2,965,488 $1,119,749 $4,250,059 
_______________________________
(1)The “Ashburn, Virginia Campus” includes both the existing data center Ashburn, VA (DC - 1) as well as new property development associated with the construction of a second data center Ashburn, VA (DC - 2).
(2)The “Atlanta, Georgia Campus” includes both the existing data center Atlanta (DC - 1) as well as the recently developed data center Atlanta, GA (DC - 2).
(3)Includes 7 facilities. All facilities are leased, including one subject to a finance lease.
(4)The “Manassas, Virginia Campus” includes new property development associated with the construction of a wholly owned data center in Manassas, Virginia as well as separate land purchases in Manassas, Virginia.
(5)Represents land purchases. Land acquisition costs, as well as subsequent development costs, are included within construction in progress until development on the land has ended and the asset is ready for its intended use.
(6)Owned facility subject to long-term ground sublease.
(7)Consists of Miami, FL; Lenexa, KS; Overland Park, KS and additional land.
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As of December 31, 2020:
Property LocationLandBuildings, Improvements and EquipmentConstruction in ProgressTotal Cost
Ashburn, Virginia Campus (1)
$16,476 $371,725 $185,903 $574,104 
Atlanta, Georgia Campus (2)
55,157 700,142 191,072 946,371 
Chicago, Illinois9,400 250,336 104,117 363,853 
Dulles, Virginia3,154 54,323 4,148 61,625 
Eemshaven, Netherlands5,366 21,712 47,531 74,609 
Fort Worth, Texas9,079 124,054 1,064 134,197 
Groningen, Netherlands1,896 11,206 3,730 16,832 
Hillsboro, Oregon18,414 34,594 78,390 131,398 
Irving, Texas8,606 392,275 99,591 500,472 
Leased Facilities (3)
 82,759 225 82,984 
Manassas, Virginia Campus (4)
 25 67,073 67,098 
Phoenix, Arizona (5)
  37,729 37,729 
Piscataway, New Jersey7,466 122,176 30,401 160,043 
Princeton, New Jersey20,700 35,261 5 55,966 
Richmond, Virginia2,180 233,927 120,577 356,684 
Sacramento, California1,481 66,300 12 67,793 
Santa Clara, California (6)
 117,343 9,385 126,728 
Suwanee, Georgia (Atlanta-Suwanee)3,521 184,467 6,718 194,706 
Other (7)
2,213 36,636 41,094 79,943 
$165,109 $2,839,261 $1,028,765 $4,033,135 
_______________________________
(1)The “Ashburn, Virginia Campus” includes both the existing data center Ashburn, VA (DC - 1) as well as new property development associated with the construction of a second data center Ashburn, VA (DC - 2).
(2)The “Atlanta, Georgia Campus” includes both the existing data center Atlanta (DC - 1) as well as the recently developed data center Atlanta, GA (DC - 2).
(3)Includes 7 facilities. All facilities are leased, including one subject to a finance lease.
(4)The “Manassas, Virginia Campus” includes new property development associated with the construction of a wholly owned data center in Manassas, Virginia as well as separate land purchases in Manassas, Virginia.
(5)Represents land purchases. Land acquisition costs, as well as subsequent development costs, are included within construction in progress until development on the land has ended and the asset is ready for its intended use.
(6)Owned facility subject to long-term ground sublease.
(7)Consists of Miami, FL; Lenexa, KS; Overland Park, KS and additional land.
4. Leases
Leases as Lessee
We use leasing as a source of financing for certain data center facilities and related equipment. We currently operate one data center facility, along with various equipment and fiber optic transmission cabling, that are subject to finance leases. The remaining terms of our finance leases range from approximately ten years to twenty years. Our finance lease associated with the data center includes multiple extension option periods, some of which were included in the lease term as we are reasonably certain to exercise those extension options. Our other finance leases typically do not have options to extend the initial lease term.

We currently lease six other facilities under operating lease agreements for various data centers, our corporate headquarters and additional office space. Our leases have remaining lease terms ranging from less than three years to six years. We have options to extend the initial lease term on nearly all of these leases. Additionally, we have one ground lease for our Santa Clara property that is an operating lease which is scheduled to expire in 2052.
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Components of lease expense were as follows (unaudited and in thousands):
Three months ended March 31,
20212020
Finance lease cost:
Amortization of assets$1,013 $1,038 
Interest on lease liabilities469 489 
Operating lease expense:
Operating lease cost2,232 2,263 
Variable lease cost270 264 
Sublease income(49)(48)
Total lease costs$3,935 $4,006 
Leases as lessor
Our lease revenue contains both minimum lease payments as well as variable lease payments. See Note 2 ‘Summary of Significant Accounting Policies’ for further details of our revenue streams and associated accounting treatment. The components of our lease revenue were as follows (unaudited and in thousands):
Three months ended March 31,
20212020
Lease revenue:
Minimum lease revenue$127,706 $107,485 
Variable lease revenue (primarily recoveries from customers)16,602 12,596 
Total lease revenue$144,308 $120,081 
5. Investments in Unconsolidated Entity
During the three months ended March 31, 2019, we formed an unconsolidated entity with Alinda Capital Partners (“Alinda”), an infrastructure investment firm. We contributed a hyperscale data center under development in Manassas, Virginia to the entity. The facility, and the previously executed 10-year operating lease agreement with a global cloud-based software company, was contributed to the unconsolidated entity in exchange for cash and noncash consideration in the form of equity interest in the entity that was measured at fair value pursuant to Topic 820. The equity interest received and any amounts due from the unconsolidated entity are recorded within our consolidated balance sheets and totaled $25.9 million and $22.6 million as of March 31, 2021 and December 31, 2020, respectively. We and Alinda each own a 50% interest in the entity. As we are not the primary beneficiary of the arrangement but have the ability to exercise significant influence, we concluded that the investment should be accounted for as an unconsolidated entity using equity method investment accounting. As of March 31, 2021 and December 31, 2020, the total assets of the entity were $145.8 million and $141.5 million, respectively. As of March 31, 2021 and December 31, 2020, the total debt outstanding, net of deferred financing costs, was $92.2 million and $90.1 million, respectively.
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6. Debt
Below is a listing of our outstanding debt, including finance leases, as of March 31, 2021 and December 31, 2020 (in thousands):
Weighted Average Effective Interest Rate at March 31, 2021 (1)
Maturity DateMarch 31,
2021
December 31,
2020
(unaudited)(unaudited)
Unsecured Credit Facility
Revolving Credit Facility1.36%December 17, 2023$361,877 $392,337 
Term Loan A3.26%December 17, 2024225,000 225,000 
Term Loan B3.30%April 27, 2025225,000 225,000 
Term Loan C3.46%October 18, 2026250,000 250,000 
Term Loan D1.45%January 15, 2026250,000 250,000 
3.875% Senior Notes3.88%October 1, 2028500,000 500,000 
Finance Leases4.35%2031 - 204042,525 41,718 
2.87%1,854,402 1,884,055 
Less net debt issuance costs(13,935)(14,562)
Total outstanding debt, net$1,840,467 $1,869,493 
_________________________
(1)The coupon interest rates associated with Term Loan A, Term Loan B, and Term Loan C incorporate the effects of our interest rate swaps in effect as of March 31, 2021.
The annual remaining principal payment requirements of our debt securities as of March 31, 2021 per the contractual maturities, excluding extension options and excluding operating and finance leases, are as follows (unaudited and in thousands):
2021 (April - December)$ 
2022 
2023361,877 
2024225,000 
2025225,000 
Thereafter1,000,000 
Total$1,811,877 
As of March 31, 2021, we were in compliance with all of our covenants of our debt agreements.
7. Derivative Instruments