QTS could raise $200 million capital; leverage stays at 6x for now

By Devika Patel

Knoxville, Tenn., June 5 – QTS Realty Trust, Inc. raised $100 million of new funding in the first quarter through a $100 million sale of 7.125% series A cumulative redeemable perpetual preferred stock, which was used to repay debt under a revolver.

The company’s management believes that it is able to raise capital through a variety of sources to fund its business and expects to tap these sources for an additional $200 million.

Leverage will remain in the 6x area but will drop to about 5.5x in the long term, an executive said.

“We have a lot of different options and ways to fund the business in a very constructive way,” chief financial officer Jeffrey H. Berson said at the Nareit REITweek conference in New York on Tuesday.

“I think we demonstrated that in the first quarter where we needed about $100 million and wound up raising $100 million in a perpetual preferred offering to drive the business and support our leverage,” Berson said.

The company is keeping its leverage at around 6x right now but longer term expects to lower its leverage ratio to around 5.5x.

“We expect to maintain leverage at or below the 6x level,” Berson said.

“Longer term, we think leverage more at a 5.5x, but in the short term, because of the visibility and the booked-not-billed backlog, that we’re comfortable getting up to that 6x and the natural deleveraging in our model of the remainder of the year,” he said.

The company needs another $200 million of capital which it will raise through funding sources like the preferred offering or perhaps monetizing assets.

“And so, less the capital that we just raised in the first quarter, I think most estimates are that we’re looking for an additional up to $200 million of capital coming into the business,” Berson said.

“We continue to feel very comfortable that we have sources including structured products like the preferred offering including the ability to look at current assets and return capital to monetize assets in different constructive ways,” Berson said.

On March 8, QTS priced $100 million of 7.125% series A cumulative redeemable perpetual preferreds.

Merrill Lynch, Pierce, Fenner & Smith Inc., Morgan Stanley & Co. LLC and Wells Fargo Securities, LLC were joint bookrunners for the $25 par offering, which had an over-allotment option for $15 million.

The preferreds will be callable at par starting in 2023.

Proceeds were used to repay some of the borrowings outstanding under the company’s revolving credit facility and for general corporate purposes.

QTS Realty is an Overland Park, Kan. data center operator.

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