QTS Realty Trust, Inc. (Form: 10-Q, Received: 08/06/2018 07:29:20)

ASSIGNOR :

ASSIGNEE :

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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 June 30, 2018

☐ 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.

QualityTech, LP

(Exact name of registrant as specified in its charter)

Maryland (QTS Realty Trust, Inc.)	46-2809094
Delaware (QualityTech, LP) (State or other jurisdiction of incorporation or organization)	27-0707288 (I.R.S. Employer Identification No.)

12851 Foster Street, Overland Park, Kansas	66213
(Address of principal executive offices)	(Zip Code)

(Registrant’s telephone number, including area code) (913) 312-5503

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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.


QTS Realty Trust, Inc. Yes ☒ No ☐	QualityTech, LP Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every interactive Data File required to be submitted and posted 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 and post such files).


QTS Realty Trust, Inc. Yes ☒ No ☐	QualityTech, LP Yes ☒ No ☐

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.

QTS Realty Trust, Inc.


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☐

		Emerging growth company	☐

QualityTech, LP


Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒ (Do not check if a smaller reporting company)	Smaller 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. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


QTS Realty Trust, Inc. Yes ☐ No ☒	QualityTech, LP Yes ☐ No ☒

There were 51,018,919 shares of Class A common stock, $0.01 par value per share, and 128,408 shares of Class B common stock, $0.01 par value per share, of QTS Realty Trust, Inc. outstanding on August 1, 2018.

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EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q of QTS Realty Trust, Inc. (“QTS”) and QualityTech, LP, a Delaware limited partnership, which is our operating partnership (the “Operating Partnership”). This report also includes the financial statements of QTS and those of the Operating Partnership, although it presents only one set of combined notes for QTS’ financial statements and those of the Operating Partnership.

Substantially all of QTS’s assets are held by, and its operations are conducted through, the Operating Partnership. QTS is the sole general partner of the Operating Partnership, and, as of June 30, 2018, its only material asset consisted of its ownership of approximately 88.5% of the Operating Partnership. Management operates QTS and the Operating Partnership as one business. The management of QTS consists of the same employees as the management of the Operating Partnership. QTS does not conduct business itself, other than acting as the sole general partner of the Operating Partnership and issuing public equity from time to time. QTS has not issued or guaranteed any indebtedness. Except for net proceeds from public equity issuances by QTS, which are contributed to the Operating Partnership in exchange for units of limited partnership interest of the Operating Partnership, the Operating Partnership generates all remaining capital required by our business through its operations, the direct or indirect incurrence of indebtedness, and the issuance of partnership units. Therefore, as general partner with voting control of the Operating Partnership, QTS consolidates the Operating Partnership for financial reporting purposes.

We believe, therefore, that a combined presentation with respect to QTS and the Operating Partnership, including providing one set of notes for the financial statements of QTS and the Operating Partnership, provides the following benefits:

enhances investors’ understanding of QTS and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;

eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure in this report applies to both QTS and the Operating Partnership; and

creates time and cost efficiencies through the preparation of one presentation instead of two separate presentations.

In addition, in light of these combined disclosures, we believe it is important for investors to understand the few differences between QTS and the Operating Partnership in the context of how QTS and the Operating Partnership operate as a consolidated company. With respect to balance sheets, the presentation of stockholders’ equity and partners’ capital are the main areas of difference between the consolidated balance sheets of QTS and those of the Operating Partnership. On the Operating Partnership’s consolidated balance sheets, partners’ capital includes preferred partnership units and common partnership units as well as accumulated other comprehensive income (loss) that are owned by or attributable to QTS and other partners. On QTS’ consolidated balance sheets, stockholders’ equity includes preferred stock, common stock, additional paid-in capital, accumulated other comprehensive income (loss) and accumulated dividends in excess of earnings. The remaining equity reflected on QTS’ consolidated balance sheet is the portion of net assets that are retained by partners other than QTS, referred to as noncontrolling interests. With respect to statements of operations, the primary difference in QTS' Statements of Operations and Statements of Comprehensive Income (Loss) is that for net income (loss), QTS retains its proportionate share of the net income (loss) based on its ownership of the Operating Partnership, with the remaining balance being retained by the Operating Partnership.

In order to highlight the few differences between QTS and the Operating Partnership, there are sections and disclosure in this report that discuss QTS and the Operating Partnership separately, including separate financial statements, separate audit reports, separate controls and procedures sections, separate Exhibit 31 and 32 certifications, and separate presentation of certain accompanying notes to the financial statements, including Note 8 – Partners’ Capital, Equity and Incentive Compensation Plans. In the sections that combine disclosure for QTS and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of “we,” “our,” “us,” “our company” and “the Company.” Although the Operating Partnership is generally the entity that enters into contracts, holds assets and issues debt, we believe that these general references to “we,” “our,” “us,” “our company” and “the Company” in this context are appropriate because the business is one enterprise operated through the Operating Partnership.

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QTS Realty Trust, Inc.

QualityTech, LP

Form 10-Q

For the Quarterly Period Ended June 30, 2018

INDEX


		Page
PART I.	FINANCIAL INFORMATION

ITEM 1.	Financial Statements of QTS Realty Trust, Inc.	4

	Financial Statements of Quality Tech, LP	10

	Notes to QTS Realty Trust, Inc. and QualityTech, LP Financial Statements	16

ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	39

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	62

ITEM 4.	Controls and Procedures	62

PART II.	OTHER INFORMATION

ITEM 1.	Legal Proceedings	64

ITEM 1A.	Risk Factors	64

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64

ITEM 3.	Defaults Upon Senior Securities	65

ITEM 4.	Mine Safety Disclosures	65

ITEM 5.	Other Information	65

ITEM 6.	Exhibits	65

	Signatures	68

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

QTS REALTY TRUST, INC.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

BALANCE SHEETS

(in thousands except per share data)


	June 30, 2018		December 31, 2017
	(unaudited)
ASSETS
Real Estate Assets
Land	$	105,541	$	88,216
Buildings, improvements and equipment		1,833,870		1,701,287
Less: Accumulated depreciation		(434,565)		(394,823)
		1,504,846		1,394,680
Construction in progress		649,766		567,819
Real Estate Assets, net		2,154,612		1,962,499
Cash and cash equivalents		52,468		8,243
Rents and other receivables, net		50,090		47,046
Acquired intangibles, net		100,202		109,451
Deferred costs, net		44,682		41,545
Prepaid expenses		10,088		6,163
Goodwill		173,843		173,843
Other assets, net		68,880		66,266
TOTAL ASSETS	$	2,654,865	$	2,415,056

LIABILITIES
Unsecured credit facility, net	$	694,751	$	825,186
Senior notes, net of debt issuance costs		394,406		394,178
Capital lease, lease financing obligations and mortgage notes payable		6,217		10,565
Accounts payable and accrued liabilities		109,355		113,430
Dividends and distributions payable		25,648		22,222
Advance rents, security deposits and other liabilities		29,640		28,903
Deferred income taxes		2,068		4,611
Deferred income		32,870		25,305
TOTAL LIABILITIES		1,294,955		1,424,400

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 June 30, 2018; zero shares authorized, issued and outstanding as of December 31, 2017		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 June 30, 2018; zero shares authorized, issued and outstanding as of December 31, 2017		304,426		—
Common stock: $0.01 par value, 450,133,000 shares authorized, 51,140,798 and 50,701,795 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively		511		507
Additional paid-in capital		1,056,667		1,049,176
Accumulated other comprehensive income		8,840		1,283
Accumulated dividends in excess of earnings		(223,724)		(173,552)
Total stockholders’ equity		1,249,932		877,414
Noncontrolling interests		109,978		113,242
TOTAL EQUITY		1,359,910		990,656
TOTAL LIABILITIES AND EQUITY	$	2,654,865	$	2,415,056

See accompanying notes to financial statements.

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QTS REALTY TRUST, INC.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

STATEMENTS OF OPERATIONS

(unaudited and in thousands except share and per share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Revenues:
Rental	$	89,232	$	80,793	$	174,945	$	159,910
Recoveries from customers		10,444		8,774		21,957		17,135
Cloud and managed services		10,974		16,856		24,155		33,821
Other		1,627		1,445		4,917		2,966
Total revenues		112,277		107,868		225,974		213,832

Operating Expenses:
Property operating costs		36,558		36,846		74,298		72,267
Real estate taxes and insurance		2,903		2,946		5,808		6,093
Depreciation and amortization		37,820		34,527		73,733		68,475
General and administrative		21,031		22,562		43,265		44,759
Transaction, integration and impairment costs		653		161		1,573		497
Restructuring		11,430		—		19,960		—
Total operating expenses		110,395		97,042		218,637		192,091

Operating income		1,882		10,826		7,337		21,741

Other income and expenses:
Interest income		25		—		26		1
Interest expense		(8,203)		(7,647)		(16,313)		(14,516)
Income (loss) before taxes		(6,296)		3,179		(8,950)		7,226
Tax benefit (expense) of taxable REIT subsidiaries		(137)		1,429		2,265		2,950
Net income (loss)		(6,433)		4,608		(6,685)		10,176
Net (income) loss attributable to noncontrolling interests		1,002		(568)		1,031		(1,259)
Net income (loss) attributable to QTS Realty Trust, Inc.	$	(5,431)	$	4,040	$	(5,654)	$	8,917
Preferred stock dividends		(2,248)		—		(2,576)		—
Net income (loss) attributable to common stockholders	$	(7,679)	$	4,040	$	(8,230)	$	8,917

Net income (loss) per share attributable to common shares:
Basic	$	(0.16)	$	0.08	$	(0.17)	$	0.18
Diluted		(0.16)		0.08		(0.17)		0.17

See accompanying notes to financial statements.

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QTS REALTY TRUST, INC.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited and in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Net income (loss)	$	(6,433)	$	4,608	$	(6,685)	$	10,176
Other comprehensive income (loss):
Increase (decrease) in fair value of interest rate swaps		2,563		(1,499)		8,545		(1,499)
Reclassification of other comprehensive income to interest expense		91		—		493		—
Comprehensive income (loss)		(3,779)		3,109		2,353		8,677
Comprehensive (income) loss attributable to noncontrolling interests		431		(385)		(271)		(1,076)
Comprehensive income (loss) attributable to QTS Realty Trust, Inc.	$	(3,348)	$	2,724	$	2,082	$	7,601

See accompanying notes to financial statements.

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QTS REALTY TRUST, INC.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF EQUITY

(unaudited and in thousands)


									Accumulated other		Accumulated		Total
	Preferred Stock			Common stock			Additional		comprehensive		dividends in		stockholders'		Noncontrolling
	Shares	Amount		Shares	Amount		paid-in capital		income		excess of earnings		equity		interests		Total
Balance January 1, 2018	—	$	—	50,702	$	507	$	1,049,176	$	1,283	$	(173,552)	$	877,414	$	113,242	$	990,656
Net share activity through equity award plan	—		—	439		4		(1,897)		—		—		(1,893)		1,031		(862)
Increase in fair value of interest rate swaps	—		—	—		—		—		7,557		—		7,557		988		8,545
Equity-based compensation expense	—		—	—		—		9,388		—		—		9,388		1,220		10,608
Net proceeds from Series A Preferred Stock offering	4,280		103,212	—		—		—		—		—		103,212		—		103,212
Net proceeds from Series B Preferred Stock offering	3,163		304,426	—		—		—		—		—		304,426		—		304,426
Dividends declared on the Series A Preferred Stock	—		—	—		—		—		—		(2,233)		(2,233)		—		(2,233)
Dividends declared on the Series B Convertible Preferred Stock	—		—	—		—		—		—		(343)		(343)		—		(343)
Dividends to common stockholders	—		—	—		—		—		—		(41,942)		(41,942)		—		(41,942)
Distributions to noncontrolling interests	—		—	—		—		—		—		—		—		(5,472)		(5,472)
Net loss	—		—	—		—		—		—		(5,654)		(5,654)		(1,031)		(6,685)
Balance June 30, 2018	7,443	$	407,638	51,141	$	511	$	1,056,667	$	8,840	$	(223,724)	$	1,249,932	$	109,978	$	1,359,910

See accompanying notes to financial statements.

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QTS REALTY TRUST, INC.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

STATEMENTS OF CASH FLOW

(unaudited and in thousands)

For the six months ended June 30, 2018 and 2017


	2018		2017
Cash flow from operating activities:
Net income (loss)	$	(6,685)	$	10,176
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		70,804		66,443
Amortization of above and below market leases		270		479
Amortization of deferred loan costs		1,923		1,815
Amortization of senior notes discount		—		136
Equity-based compensation expense		7,480		6,815
Bad debt expense		(1,230)		1,105
Deferred tax benefit		(2,443)		(2,979)
Loss on sale of equipment		2,846		—
Restructuring costs, net of cash paid		10,065		—
Changes in operating assets and liabilities
Rents and other receivables, net		(1,914)		(3,599)
Prepaid expenses		(3,925)		(1,957)
Other assets		1,867		(595)
Accounts payable and accrued liabilities		3,535		(7,640)
Advance rents, security deposits and other liabilities		1,369		5,745
Deferred income		7,564		1,440
Net cash provided by operating activities		91,526		77,384

Cash flow from investing activities:
Proceeds from sale of property		1,496		—
Acquisitions, net of cash acquired		(24,626)		(5,019)
Additions to property and equipment		(248,852)		(139,818)
Net cash used in investing activities		(271,982)		(144,837)

Cash flow from financing activities:
Credit facility proceeds		231,000		109,000
Credit facility repayments		(362,000)		—
Debt proceeds		—		1,920
Payment of deferred financing costs		(606)		(38)
Payment of preferred stock dividends		(635)		—
Payment of common stock dividends		(40,641)		(35,958)
Distribution to noncontrolling interests		(5,289)		(5,087)
Proceeds from exercise of stock options		18		662
Payment of tax withholdings related to equity-based awards		(1,233)		(2,464)
Principal payments on capital lease obligations		(4,316)		(6,547)
Mortgage principal debt repayments		(32)		(22)
Preferred stock issuance proceeds, net of costs		408,415		—
Common stock issuance proceeds, net of costs		—		39,011
Net cash provided by financing activities		224,681		100,477

Net increase in cash and cash equivalents		44,225		33,024
Cash and cash equivalents, beginning of period		8,243		9,580
Cash and cash equivalents, end of period	$	52,468	$	42,604

See accompanying notes to financial statements.

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QTS REALTY TRUST, INC.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

STATEMENTS OF CASH FLOW (continued)

(unaudited and in thousands)

For the six months ended June 30, 2018 and 2017


	2018		2017
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest (excluding deferred financing costs and amounts capitalized)	$	14,265	$	11,517
Noncash investing and financing activities:
Accrued capital additions	$	67,708	$	46,894
Increase in other assets related to change in fair value of interest rate swaps	$	8,545	$	1,499
Accrued equity issuance costs	$	777	$	—
Accrued preferred stock dividend	$	2,576	$	—
Accrued deferred financing costs	$	14	$	—

See accompanying notes to financial statements.

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QUALITYTECH, LP

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

BALANCE SHEETS

(in thousands)


	June 30, 2018		December 31, 2017
	(unaudited)
ASSETS
Real Estate Assets
Land	$	105,541	$	88,216
Buildings, improvements and equipment		1,833,870		1,701,287
Less: Accumulated depreciation		(434,565)		(394,823)
		1,504,846		1,394,680
Construction in progress		649,766		567,819
Real Estate Assets, net		2,154,612		1,962,499
Cash and cash equivalents		52,468		8,243
Rents and other receivables, net		50,090		47,046
Acquired intangibles, net		100,202		109,451
Deferred costs, net		44,682		41,545
Prepaid expenses		10,088		6,163
Goodwill		173,843		173,843
Other assets, net		68,880		66,266
TOTAL ASSETS	$	2,654,865	$	2,415,056

LIABILITIES
Unsecured credit facility, net	$	694,751	$	825,186
Senior notes, net of debt issuance costs		394,406		394,178
Capital lease, lease financing obligations and mortgage notes payable		6,217		10,565
Accounts payable and accrued liabilities		109,355		113,430
Dividends and distributions payable		25,648		22,222
Advance rents, security deposits and other liabilities		29,640		28,903
Deferred income taxes		2,068		4,611
Deferred income		32,870		25,305
TOTAL LIABILITIES		1,294,955		1,424,400

PARTNERS' CAPITAL
7.125% Series A cumulative redeemable perpetual preferred units: $0.01 par value (liquidation preference $25.00 per unit), 4,600,000 units authorized, 4,280,000 units issued and outstanding as of June 30, 2018; zero units authorized, issued and outstanding as of December 31, 2017		103,212		—
6.50% Series B cumulative convertible perpetual preferred units: $0.01 par value (liquidation preference $100.00 per unit), 3,162,500 units authorized, issued and outstanding as of June 30, 2018; zero units authorized, issued and outstanding as of December 31, 2017		304,426		—
Common units: $0.01 par value, 450,133,000 units authorized, 57,818,242 and 57,245,524 units issued and outstanding as of June 30, 2018 and December 31, 2017, respectively		942,278		989,207
Accumulated other comprehensive income		9,994		1,449
TOTAL PARTNERS' CAPITAL		1,359,910		990,656
TOTAL LIABILITIES AND PARTNERS' CAPITAL	$	2,654,865	$	2,415,056

See accompanying notes to financial statements.

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QUALITYTECH, LP

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

STATEMENTS OF OPERATIONS

(unaudited and in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Revenues:
Rental	$	89,232	$	80,793	$	174,945	$	159,910
Recoveries from customers		10,444		8,774		21,957		17,135
Cloud and managed services		10,974		16,856		24,155		33,821
Other		1,627		1,445		4,917		2,966
Total revenues		112,277		107,868		225,974		213,832

Operating Expenses:
Property operating costs		36,558		36,846		74,298		72,267
Real estate taxes and insurance		2,903		2,946		5,808		6,093
Depreciation and amortization		37,820		34,527		73,733		68,475
General and administrative		21,031		22,562		43,265		44,759
Transaction, integration and impairment costs		653		161		1,573		497
Restructuring		11,430		—		19,960		—
Total operating expenses		110,395		97,042		218,637		192,091

Operating income		1,882		10,826		7,337		21,741

Other income and expenses:
Interest income		25		—		26		1
Interest expense		(8,203)		(7,647)		(16,313)		(14,516)
Income (loss) before taxes		(6,296)		3,179		(8,950)		7,226
Tax benefit (expense) of taxable REIT subsidiaries		(137)		1,429		2,265		2,950
Net income (loss)	$	(6,433)	$	4,608	$	(6,685)	$	10,176
Preferred unit distributions		(2,248)		—		(2,576)		—
Net income (loss) attributable to common unitholders	$	(8,681)	$	4,608	$	(9,261)	$	10,176

See accompanying notes to financial statements.

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QUALITYTECH, LP

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited and in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Net income (loss)	$	(6,433)	$	4,608	$	(6,685)	$	10,176
Other comprehensive income (loss):
Increase (decrease) in fair value of interest rate swaps		2,563		(1,499)		8,545		(1,499)
Reclassification of other comprehensive income to interest expense		91		—		493		—
Comprehensive income (loss)	$	(3,779)	$	3,109	$	2,353	$	8,677

See accompanying notes to financial statements.

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QUALITYTECH, LP

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

(unaudited and in thousands)


	Limited Partners' Capital						General Partner's Capital			Accumulated other
	Preferred Units			Common Units			Common Units			comprehensive income
	Units	Amount		Units	Amount		Units	Amount		Amount		Total
Balance January 1, 2018	—	$	—	57,246	$	989,207	1	$	—	$	1,449	$	990,656
Net share activity through equity award plan	—		—	572		(862)	—		—		—		(862)
Increase in fair value of interest rate swaps	—		—	—		—	—		—		8,545		8,545
Equity-based compensation expense	—		—	—		10,608	—		—		—		10,608
Net proceeds from QTS Realty Trust, Inc. Series A Preferred equity offering	4,280		103,212	—		—	—		—		—		103,212
Net proceeds from QTS Realty Trust, Inc. Series B Preferred equity offering	3,163		304,426	—		—	—		—		—		304,426
Dividends declared on Series A Preferred Units	—		—	—		(2,233)	—		—		—		(2,233)
Dividends declared on Series B Convertible Preferred Units	—		—	—		(343)	—		—		—		(343)
Common dividends to QTS Realty Trust, Inc.	—		—	—		(41,942)	—		—		—		(41,942)
Partnership distributions	—		—	—		(5,472)	—		—		—		(5,472)
Net loss	—		—	—		(6,685)	—		—		—		(6,685)
Balance June 30, 2018	7,443	$	407,638	57,818	$	942,278	1	$	—	$	9,994	$	1,359,910

See accompanying notes to financial statements.

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QUALITYTECH, LP

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

STATEMENTS OF CASH FLOW

(unaudited and in thousands)

For the six months ended June 30, 2018 and 2017


	2018		2017
Cash flow from operating activities:
Net income (loss)	$	(6,685)	$	10,176
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		70,804		66,443
Amortization of above and below market leases		270		479
Amortization of deferred loan costs		1,923		1,815
Amortization of senior notes discount		—		136
Equity-based compensation expense		7,480		6,815
Bad debt expense (recoveries)		(1,230)		1,105
Deferred tax benefit		(2,443)		(2,979)
Loss on sale of equipment		2,846		—
Restructuring costs, net of cash paid		10,065		—
Changes in operating assets and liabilities
Rents and other receivables, net		(1,914)		(3,599)
Prepaid expenses		(3,925)		(1,957)
Other assets		1,867		(595)
Accounts payable and accrued liabilities		3,535		(7,640)
Advance rents, security deposits and other liabilities		1,369		5,745
Deferred income		7,564		1,440
Net cash provided by operating activities		91,526		77,384

Cash flow from investing activities:
Proceeds from sale of property		1,496		—
Acquisitions, net of cash acquired		(24,626)		(5,019)
Additions to property and equipment		(248,852)		(139,818)
Net cash used in investing activities		(271,982)		(144,837)

Cash flow from financing activities:
Credit facility proceeds		231,000		109,000
Credit facility repayments		(362,000)		—
Debt proceeds		—		1,920
Payment of deferred financing costs		(606)		(38)
Payment of preferred stock dividends		(635)		—
Payment of cash dividends		(40,641)		(35,958)
Partnership distributions		(5,289)		(5,087)
Proceeds from exercise of stock options		18		662
Payment of tax withholdings related to equity-based awards		(1,233)		(2,464)
Principal payments on capital lease obligations		(4,316)		(6,547)
Mortgage principal debt repayments		(32)		(22)
Preferred stock issuance proceeds, net of costs		408,415		—
Common stock issuance proceeds, net of costs		—		39,011
Net cash provided by financing activities		224,681		100,477

Net increase in cash and cash equivalents		44,225		33,024
Cash and cash equivalents, beginning of period		8,243		9,580
Cash and cash equivalents, end of period	$	52,468	$	42,604

See accompanying notes to financial statements.

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QUALITYTECH, LP

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

STATEMENTS OF CASH FLOW (continued)

(unaudited and in thousands)

For the six months ended June 30, 2018 and 2017


	2018		2017
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest (excluding deferred financing costs and amounts capitalized)	$	14,265	$	11,517
Noncash investing and financing activities:
Accrued capital additions	$	67,708	$	46,894
Increase in other assets related to change in fair value of interest rate swaps	$	8,545	$	1,499
Accrued equity issuance costs	$	777	$	—
Accrued preferred stock dividend	$	2,576	$	—
Accrued deferred financing costs	$	14	$	—

See accompanying notes to financial statements.

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QTS REALTY TRUST, INC.

QUALITYTECH, LP

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business

QTS Realty Trust, Inc., a Maryland corporation, (“QTS”) through its controlling interest in QualityTech, LP (the “Operating Partnership” and collectively with QTS and their subsidiaries, the “Company”) and the subsidiaries of the Operating Partnership, is engaged in the business of owning, acquiring, constructing, redeveloping and managing multi-tenant data centers. The Company’s portfolio consists of 26 wholly-owned and leased properties with data centers located throughout the United States, Canada, Europe and Asia.

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.

The Operating Partnership is a Delaware limited partnership formed on August 5, 2009 and is QTS’ historical predecessor. As of June 30, 2018, QTS owned approximately 88.5% of the interests in the Operating Partnership. Substantially all of QTS’ assets are held by, and 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 affairs, subject to certain limited approval and voting rights of the limited partners. QTS’ board of directors manages 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on February 28, 2018. The consolidated balance sheet data included herein as of December 31, 2017 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.

The accompanying financial statements are presented for both QTS Realty Trust, Inc. and QualityTech, LP. References to “QTS” mean QTS Realty Trust, Inc. and its controlled subsidiaries and references to the “Operating Partnership” mean QualityTech, LP and its controlled subsidiaries.

The Operating Partnership meets the definition and criteria of a variable interest entity (“VIE”) in accordance with ASC 810, Consolidation , and the Company is the primary beneficiary of the VIE. As discussed below, 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.

QTS is the sole general partner of the Operating Partnership, and its only material asset consists of its ownership interest in the Operating Partnership. Management operates QTS and the Operating Partnership as one business. The management of QTS consists of the same employees as the management of the Operating Partnership. QTS does not conduct business itself, other than acting as the sole general partner of the Operating Partnership and issuing public equity from time to time. QTS has not issued or guaranteed any indebtedness. Except for net proceeds from public equity issuances by QTS, which are contributed to the Operating Partnership in exchange for units of limited partnership interest of the Operating Partnership, the Operating Partnership generates all remaining capital required by the business through its operations, the direct or indirect incurrence of indebtedness, and the issuance of partnership units. Therefore,

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as general partner with control of the Operating Partnership, QTS consolidates the Operating Partnership for financial reporting purposes.

The Company believes, therefore, that providing one set of notes for the financial statements of QTS and the Operating Partnership provides the following benefits:

enhances investors’ understanding of QTS and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;

eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both QTS and the Operating Partnership; and

creates time and cost efficiencies through the preparation of one set of notes instead of two separate sets of notes.

In addition, in light of these combined notes, the Company believes it is important for investors to understand the few differences between QTS and the Operating Partnership in the context of how QTS and the Operating Partnership operate as a consolidated company. With respect to balance sheets, the presentation of stockholders’ equity and partners’ capital are the main areas of difference between the consolidated balance sheets of QTS and those of the Operating Partnership. On the Operating Partnership’s consolidated balance sheets, partners’ capital includes preferred partnership units and common partnership units that are owned by QTS and other partners as well as accumulated other comprehensive income (loss). On QTS’ consolidated balance sheets, stockholders’ equity includes preferred stock, common stock, additional paid in capital, accumulated other comprehensive income (loss) and accumulated dividends in excess of earnings. The remaining equity reflected on QTS’s consolidated balance sheet is the portion of net assets that are retained by partners other than QTS, referred to as noncontrolling interests. With respect to statements of operations, the primary difference in QTS' Statements of Operations and Statements of Comprehensive Income (Loss) is that for net income (loss), QTS retains its proportionate share of the net income (loss) based on its ownership of the Operating Partnership, with the remaining balance being retained by the Operating Partnership. These combined notes refer to actions or holdings as being actions or holdings of “the Company.” Although the Operating Partnership is generally the entity that enters into contracts, holds assets and issues debt, management believes that these general references to “the Company” in this context is appropriate because the business is one enterprise operated through the Operating Partnership.

As discussed above, QTS owns no operating assets and has no operations independent of the Operating Partnership and its subsidiaries. Also, the Operating Partnership owns no operating assets and has no operations independent of its subsidiaries. Obligations under the 4.75% Senior Notes due 2025 and the unsecured credit facility, both discussed in Note 5, are fully, unconditionally, and jointly and severally guaranteed by the Operating Partnership’s existing subsidiaries (other than foreign subsidiaries and receivables entities) and future subsidiaries that guarantee any indebtedness of QTS Realty Trust, Inc., the Issuers or any other subsidiary guarantor, other than QTS Finance Corporation, the co-issuer of the 4.75% Senior Notes due 2025. The indenture governing the 4.75% Senior Notes due 2025 restricts the ability of the Operating Partnership to make distributions to QTS, subject to certain exceptions, including distributions required in order for QTS to maintain its status as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the “Code”).

The interim consolidated financial statements of QTS Realty Trust, Inc. include the accounts of QTS Realty Trust, Inc. and its majority owned subsidiaries. This includes the operating results of the Operating Partnership for all periods presented.

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.

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Principles of Consolidation – The consolidated financial statements of QTS Realty Trust, Inc. include the accounts of QTS Realty Trust, Inc. and its majority-owned subsidiaries. The consolidated financial statements of QualityTech, LP include the accounts of QualityTech, LP and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in the financial statements.

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 June 30, 2018, depreciation expense related to real estate assets and non-real estate assets was $25.0 million and $3.1 million, respectively, for a total of $28.1 million. For the three months ended June 30, 2017, depreciation expense related to real estate assets and non-real estate assets was $22.0 million and $3.5 million, respectively, for a total of $25.5 million. For the six months ended June 30, 2018, depreciation expense related to real estate assets and non-real estate assets was $48.6 million and $6.4 million, respectively, for a total of $55.0 million. For the six months ended June 30, 2017, depreciation expense related to real estate assets and non-real estate assets was $43.4 million and $7.1 million, respectively, for a total of $50.5 million. The Company capitalizes certain 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 costs) begins when development efforts commence and ends when the asset is ready for its intended use. Capitalization of such costs, excluding interest, aggregated to $3.7 million and $3.4 million for the three months ended June 30, 2018 and 2017, respectively, and $7.2 million and $5.9 million for the six months ended June 30, 2018 and 2017, respectively. Interest is capitalized during the period of development by first applying the Company’s actual borrowing rate on the related asset and second, to the extent necessary, by applying the Company’s weighted average effective borrowing rate to the actual development and other costs expended during the construction period. Interest is capitalized until the property is ready for its intended use. Interest costs capitalized totaled $6.0 million and $3.2 million for the three months ended June 30, 2018 and 2017, respectively, and $11.4 million and $6.3 million for the six months ended June 30, 2018 and 2017, 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. Purchase accounting is applied to the assets and liabilities related to all real estate investments acquired in accordance with the accounting requirements of ASC 805, Business Combinations , which requires the recording of net assets of acquired businesses at fair value. The fair value of the consideration transferred is assigned to the acquired tangible assets, consisting primarily of land, construction in progress, building and improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, value of in-place leases, value of customer relationships, trade names, software intangibles and capital leases. The excess of the fair value of liabilities assumed, common stock issued and cash paid over the fair value of identifiable assets acquired is allocated to goodwill, which is not amortized by the Company.

In developing estimates of fair value of acquired assets and assumed liabilities, management analyzed 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.

Acquired in-place leases are amortized as amortization expense on a straight-line basis over the remaining life of the underlying leases. This amortization expense is accounted for as real estate amortization expense.

Acquired customer relationships are amortized as amortization expense on a straight-line basis over the expected life of the customer relationship. This amortization expense is accounted for as real estate amortization expense.

Other acquired intangible assets, which includes platform, above or below market leases, and trade name intangibles, are amortized on a straight-line basis over their respective expected lives. Above or below market leases are amortized as a reduction to or increase in rental revenue when the Company is a lessor as well as a reduction or increase to rent expense

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over the remaining lease terms in the case of the Company as lessee. The expense associated with trade name intangibles is accounted for as real estate expense, whereas the expense associated with the amortization of platform intangibles is accounted for as non-real estate expense.

In March 2018, the Company completed the acquisition of approximately 61 acres of land in Manassas, Virginia for approximately $24.6 million to be used for future development. The acquisition was accounted for as an asset acquisition. The land acquired in the Manassas purchase is included within the “Construction in Progress” line item of the consolidated balance sheets.

The Company accounts for the sale of assets under Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20), which provides for recognition or derecognition based on transfer of ownership. During the three months ended June 30, 2018, the Company recognized a $2.8 million loss on sale of equipment associated with the Company’s strategic growth plan. The loss is included within the “Restructuring” line item of the consolidated statements of operations. No gains or losses were recorded on the sale of assets for the three and six months ended June 30, 2017.

Impairment of Long-Lived Assets, Intangible Assets and Goodwill – The Company reviews its long-lived assets and intangible assets 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 exceeds the value of the undiscounted cash flows, the fair value of the asset 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. The Company recognized $0.2 million and $4.3 million of impairment losses related to certain product-related assets in the three and six months ended June 30, 2018. No impairment losses were recorded for the three and six months ended June 30, 2017.

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 the Company performed on October 1, 2017, the Company determined qualitatively that it is not more likely than not that the fair value of the Company’s one reporting unit was less than the carrying amount, thus it did not perform a quantitative analysis. As the Company continues to operate and assess its goodwill at the corporate level and its market capitalization exceeds its net asset value, further analysis was not deemed necessary as of June 30, 2018.

Cash and Cash Equivalents – The Company considers 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. The Company’s 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. The Company mitigates this risk by depositing a majority of its funds with several major financial institutions. The Company also has not experienced any losses and, therefore, does not believe that the risk is significant.

Deferred Costs – Deferred costs, net, on the Company’s balance sheets include both financing costs and leasing costs.

Deferred financing costs represent fees and other costs incurred in connection with obtaining debt and are amortized over the term of the loan and are included in interest expense. Debt issuance costs related to revolving debt arrangements are deferred and presented as assets on the balance sheet; however, all other debt issuance costs are recorded as a direct offset to the associated liability. Amortization of debt issuance costs, including those costs presented as offsets to the associated liability in the consolidated balance sheet, was $1.0 million and $0.9 million for the three months ended June 30, 2018 and 2017, respectively, and $1.9 million and $1.8 million for the six months ended June 30, 2018 and 2017,

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respectively. Deferred financing costs presented as assets on the balance sheets related to revolving debt arrangements, net of accumulated amortization, are as follows:


	June 30,		December 31,
(dollars in thousands)	2018		2017
	(unaudited)

Deferred financing costs	$	9,757	$	9,775
Accumulated amortization		(2,887)		(1,908)
Deferred financing costs, net	$	6,870	$	7,867

Deferred financing costs presented as offsets to the associated liabilities on the balance sheet related to fixed debt arrangements, net of accumulated amortization, are as follows:


	June 30,		December 31,
(dollars in thousands)	2018		2017
	(unaudited)

Deferred financing costs	$	12,826	$	12,675
Accumulated amortization		(1,983)		(1,039)
Deferred financing costs, net	$	10,843	$	11,636

Initial direct costs, or deferred leasing costs, include commissions paid to third parties, including brokers, leasing and referral agents, and internal sales commissions paid to employees for successful execution of lease agreements. These costs are incurred when the Company executes lease agreements and represent only incremental costs that would not have been incurred if the lease agreement had not been executed. The Company incurs the same incremental costs to obtain managed services and cloud contracts with customers that are accounted for pursuant to ASC 606, Revenue from Contracts with Customers. These costs are accounted for under ASC 340-40, Other Assets and Deferred Costs, which includes the same framework for capitalization that is applied to the Company’s leasing contracts as only the direct and incremental costs of obtaining a revenue contract are capitalized. Because the framework of accounting for these costs and the underlying nature of the costs are the same for the Company’s revenue and lease contracts, the costs are presented on a combined basis within the Company’s financial statements and within the below table. Both revenue and leasing commissions are capitalized and generally amortized over the term of the related leases or the expected term of the contract using the straight-line method. If a customer lease terminates prior to the expiration of its initial term, any unamortized initial direct costs related to the lease are written off to amortization expense. Amortization of deferred leasing costs totaled $5.3 million and $4.5 million for the three months ended June 30, 2018 and 2017, respectively, and $10.2 million and $8.7 million for the six months ended June 30, 2018 and 2017, respectively. Deferred leasing costs, net of accumulated amortization, are as follows:


	June 30,		December 31,
(dollars in thousands)	2018		2017
	(unaudited)

Deferred leasing costs	$	60,624	$	54,868
Accumulated amortization		(22,812)		(20,956)
Deferred leasing costs, net	$	37,812	$	33,912

Revenue Recognition – In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance codified in Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers , which supersedes the current revenue recognition requirements in ASC Topic 605, Revenue Recognition . Under this new guidance, entities should recognize revenues to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. This standard also requires enhanced disclosures. The standard is effective for annual and interim periods beginning after December 15, 2017. Retrospective and modified retrospective application is allowed. The Company adopted ASC Topic 606 effective January 1, 2018, and elected the modified retrospective transition approach. The adoption did not result in a cumulative catch-up adjustment

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to opening equity and does not change the recognition pattern of the Company’s operating revenues. Under the standard, disclosures are required to provide information on the nature, amount, timing, and uncertainty of revenue, certain costs, and cash flows arising from contracts with customers.

The Company derives its revenues from leases with customers for data center space which include lease rental revenue components and nonlease revenue components, such as power, connectivity, cloud and managed services. A description of each of the Company’s disaggregated revenue streams is as follows:

Rental Revenue

The Company’s 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. The Company does 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 the Company to provide a series of distinct services of standing ready to deliver the power over the contracted term which is co-terminus with the lease. The Company recognizes revenue from these nonlease fixed power components over time on a straight-line basis in the same manner as the lease components of the contract as the customer simultaneously receives and consumes the power benefits provided over the lease term.

Rental revenue also includes amortization of set-up fees which are amortized over the term of the respective lease as discussed below.

Recoveries from Customers

Certain customer leases contain provisions under which customers reimburse the Company 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 are nonlease components and relate specifically to the Company’s variable power arrangements, whereby customers pay variable monthly fees for the specific amount of power utilized at the current utility rates. The Company’s 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. the Company provides power to its customers) and customers utilize the power. Reimbursement of real estate taxes, insurance, common area maintenance, or other operating expenses are accounted for as executory costs under lease guidance and are recognized as revenue in the period that the associated expenses are recognized.

Cloud and Managed Services

The Company may provide both its cloud product and use of its managed services to its customers on an individual or combined basis. In both its cloud and managed services offerings the Company’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 IT outsourcing environment over a contracted term. Although underlying services may vary, over the contracted term monthly service offerings are substantially the same and the Company accounts for the services as a series of distinct services. Service fee revenue is recognized as the revenue is earned, which generally coincides with the services being provided. As the Company has the right to consideration from customers in an amount that corresponds directly with the value to the customer of the Company’s performance of providing continuous services, the Company recognizes monthly revenue for the amount invoiced.

With respect to the transaction price allocated to remaining performance obligations within the Company’s cloud and managed service contracts, the Company has elected to use the optional exemption provided by the standard whereby the Company is not required to estimate the total transaction price allocated to remaining performance obligations as the Company applies the “right-to-invoice” practical expedient. As described above, the nature of our performance

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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.

Other

Other revenue primarily consists of straight line rent. Straight line rent represents the difference in rents recognized 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 sheets included in rents and other receivables, net was $26.5 million and $23.4 million as of June 30, 2018 and December 31, 2017, respectively.

Advance Rents and Security Deposits – Advance rents, typically prepayment of the following month’s rent, consist of payments received from customers prior to the time they are earned and are recognized as revenue in subsequent periods when earned. Security deposits are collected from customers at the lease origination and are generally refunded to customers upon lease expiration.

Deferred Income – Deferred income generally results from non-refundable charges paid by the customer at lease inception to prepare their space for occupancy. The Company records 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 $32.9 million and $25.3 million as of June 30, 2018 and December 31, 2017, respectively. Additionally, $3.2 million and $2.4 million of deferred income was amortized into revenue for the three months ended June 30, 2018 and 2017, respectively, and $6.1 million and $5.1 million for the six months ended June 30, 2018 and 2017, 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 vesting periods. We have elected to account for forfeitures as they occur. Equity-based compensation expense net of forfeited and repurchased awards was $4.0 million and $3.7 million for the three months ended June 30, 2018 and 2017, respectively, and $7.5 million and $6.8 million for the six months ended June 30, 2018 and 2017, respectively. Equity-based compensation expense for the three and six months ended June 30, 2018 excludes $1.7 million and $3.1 million, respectively, of equity-based compensation expense associated with the acceleration of equity awards related to certain employees impacted by the Company’s strategic growth plan. The aforementioned equity-based compensation expense is included in the “Restructuring” expense line item on the consolidated statements of operations.

Allowance for Uncollectible Accounts Receivable – Rents receivable are recognized when due and are carried at cost, less an allowance for doubtful accounts. The Company records a provision for losses on rents receivable equal to the estimated uncollectible accounts, which is based on management’s historical experience and a review of the current status of the Company’s receivables. As necessary, the Company also establishes an appropriate allowance for doubtful accounts for receivables arising from the straight-lining of rents. The aggregate allowance for doubtful accounts was $4.4 million and $11.5 million as of June 30, 2018 and December 31, 2017, respectively.

Capital Leases and Lease Financing Obligations – The Company evaluates leased real estate to determine whether the lease should be classified as a capital or operating lease in accordance with U.S. GAAP.

The Company periodically enters into capital leases for certain equipment. In addition, through its acquisition of Carpathia on June 16, 2015, the Company is party to capital leases for property and equipment, as well as certain financing obligations. The outstanding liabilities for the capital leases were $3.9 million and $7.8 million as of June 30, 2018 and December 31, 2017, respectively. The outstanding liabilities for the lease financing obligations were $0.5 million and $0.9 million as of June 30, 2018 and December 31, 2017, respectively. The net book value of the assets associated with these leases was approximately $10.9 million and $14.7 million as of June 30, 2018 and December 31, 2017, respectively. Depreciation related to the associated assets is included in depreciation and amortization expense in the Statements of Operations.

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See Note 5 for further discussion of capital leases and lease financing obligations.

Segment Information – The Company manages its business as one operating segment and thus one reportable segment consisting of a portfolio of investments in data centers located primarily in the United States.

Customer Concentrations – As of June 30, 2018, one of the Company’s customers represented 12.1% of its total monthly rental revenue. No other customers exceeded 5% of total monthly rental revenue.

As of June 30, 2018, four of the Company’s customers exceeded 5% of total accounts receivable. In aggregate, these four customers accounted for approximately 31% of total accounts receivable. One of these four customers exceeded 10% of total accounts receivable.

Income Taxes – The Company has elected for two of its existing subsidiaries to be taxed as taxable REIT subsidiaries pursuant to the REIT rules of the U.S. Internal Revenue Code.

For the taxable REIT subsidiaries, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

A deferred tax benefit has been recognized in the three months ended March 31, 2018, in connection with recorded operating losses. As of June 30, 2018, one of the Company’s taxable REIT subsidiaries is in a net deferred tax liability position primarily due to customer-based intangibles acquired as part of the acquisition of Carpathia on June 16, 2015. However, it is expected that the forecasted annual activity will drive this taxable REIT subsidiary into a net deferred tax asset position by the end of 2018. The impact of the 2018 forecasted annual activity will more-likely-than-not result in the need for a federal and state valuation allowance during the balance of 2018, and therefore, the expectation of a valuation allowance has been built into the Company’s estimated annual effective tax rate for the quarter.

The Company provides for income taxes during interim periods based on the estimated effective tax rate for the year. 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. The taxable REIT subsidiaries’ effective tax rates were 10.8% and 39.1% for the six months ended June 30, 2018 and 2017, respectively.

On December 22, 2017, the Tax Cuts and Jobs Act ("the Act"), was signed into law by President Trump. The Act contains several provisions, including the lowering of the U.S. corporate income tax rate from 35 percent to 21 percent, effective January 1, 2018.

The Company is following the guidance in SEC Staff Accounting Bulletin 118 (“SAB 118”), which provides additional clarification regarding the application of ASC Topic 740, Income Taxes, in situations where the Company may not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Act for the reporting period in which the Act was enacted. SAB 118 provides for a measurement period beginning in the reporting period that includes the Act’s enactment date and ending when the Company has obtained, prepared, and analyzed the information needed in order to complete the accounting requirements but in no circumstances should the measurement period extend beyond one year from the enactment date.

Upon completion of the Company’s 2017 federal income tax return in 2018, additional re-measurement adjustments may be identified with respect to the recorded deferred tax assets (liabilities). The Company will continue to assess the provision for income taxes as future guidance is issued, but does not currently anticipate that significant revisions will be necessary. Any such revisions will be treated in accordance with the measurement period guidance outlined in SAB 118.

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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).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has 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. The Company’s 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 June 30, 2018, the Company valued its interest rate swaps which were entered into in April 2017 primarily utilizing Level 2 inputs. See Note 14 – ‘Fair Value of Financial Instruments’ for additional details.

New Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , which supersedes the current lease guidance in ASC 840, Lease s. The core principle of Topic 842 requires lessees to recognize the assets and liabilities that arise from nearly all leases in the statement of financial position. Accounting applied by lessors will remain largely consistent with previous guidance, with additional changes set to align lessor accounting with the revised lessee model and the FASB’s revenue recognition guidance in Topic 606. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The standard requires a modified retrospective transition approach. In July 2018, the FASB issued ASU 2018-11, Leases – Targeted Improvements (Topic 842) , which updated the lease standard to include practical expedients that remove the requirement to restate prior period financial statements upon adoption of the standard as well as a practical expedient which allows lessors not to separate non-lease components from the related lease components if both the timing and pattern of transfer are the same for the non-lease component(s) and related lease component and the combined single lease component would be classified as an operating lease. The Company plans to adopt ASC 842 effective January 1, 2019, and will apply the transition relief under the new lease standard as of January 1, 2019. As lessee, the Company does not anticipate the classification of its leases to change but will recognize a new initial lease liability and right-of-use asset on the consolidated balance sheet for all operating leases which is expected to be material to our consolidated balance sheet. As lessor, accounting for our leases will remain largely unchanged, apart from the narrower definition of initial direct costs that can be capitalized. The new lease standard more narrowly defines initial direct costs as only costs that are incremental at the signing of a lease. As the Company does not currently capitalize material non-incremental costs, it expects the impact of this change to be immaterial to the financial statements. Upon adoption of the standard on January 1, 2019, including the transition relief provided in ASU 2018-11, the Company will not be required to restate prior period comparative financial statements to include a right of use asset and liability from the Company’s operating leases as lessee. Additionally, from a lessor perspective, the transition relief will alleviate the Company’s need to separate lease from non-lease components within its rental revenue contracts. The Company will disclose any changes to this analysis as identified.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business . The standard changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The Company adopted this standard as of January 1, 2018, and as a result of this new

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guidance, acquisitions may now be more likely to result in a transaction being classified as an asset purchase rather than a business combination.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment . The new guidance eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of today’s goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on today’s Step 1). The guidance will be applied prospectively and is effective for calendar year-end public companies in 2020, with early adoption permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company does not expect the provisions of the standard will have a material impact on its consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The amendments in ASU 2017-12 change the recognition and presentation requirements of hedge accounting, including the elimination of the requirement to separately measure and report hedge ineffectiveness and the addition of a requirement to present all items that affect earnings in the same income statement line item as the hedged item. ASU 2017-12 also provides new alternatives for: applying hedge accounting to additional hedging strategies; measuring the hedged item in fair value hedges of interest rate risk; reducing the cost and complexity of applying hedge accounting by easing the requirements for effectiveness testing, hedge documentation and application of the critical terms match method; and reducing the risk of material error correction if a company applies the shortcut method inappropriately. The guidance is effective for public entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted. The Company does not expect the provisions of the standard will have a material impact on its consolidated financial statements.

3. Acquired Intangible Assets and Liabilities

Summarized below are the carrying values for the major classes of intangible assets and liabilities (unaudited and in thousands):


		June 30, 2018						December 31, 2017
		Gross						Gross
		Carrying		Accumulated		Net Carrying		Carrying		Accumulated		Net Carrying
	Useful Lives	Value		Amortization		Value		Value		Amortization		Value
Customer Relationships	1 to 12 years	$	95,705	$	(24,486)	$	71,219	$	95,705	$	(20,512)	$	75,193
In-Place Leases	0.5 to 10 years		32,066		(15,419)		16,647		32,066		(12,987)		19,079
Solar Power Agreement (1)	17 years		13,747		(3,235)		10,512		13,747		(2,830)		10,917
Platform Intangible	3 years		9,600		(9,600)		—		9,600		(8,133)		1,467
Acquired Favorable Leases	0.5 to 8 years		4,649		(2,825)		1,824		4,649		(2,328)		2,321
Tradenames	3 years		3,100		(3,100)		—		3,100		(2,626)		474
Total Intangible Assets		$	158,867	$	(58,665)	$	100,202	$	158,867	$	(49,416)	$	109,451

Solar Power Agreement (1)	17 years		13,747		(3,235)		10,512		13,747		(2,830)		10,917
Acquired Unfavorable Leases
Acquired below market leases - as Lessor	3 to 4 years		809		(493)		316		809		(375)		434
Acquired above market leases - as Lessee	11 to 12 years		2,453		(658)		1,795		2,453		(550)		1,903
Total Intangible Liabilities (2)		$	17,009	$	(4,386)	$	12,623	$	17,009	$	(3,755)	$	13,254

(1)

Amortization related to the Solar Power Agreement asset and liability is recorded at the same rate and therefore has no net impact on the statement of operations.

(2)

Intangible liabilities are included within the “Advance rents, security deposits and other liabilities” line item of the consolidated balance sheets.

Above or below market leases are amortized as a reduction to or increase in rental revenue as well as a reduction to rent expense in the case of the Company as lessee over the remaining lease terms. The net effect of amortization of acquired above‑market and below‑market leases resulted in a net decrease in rental revenue of $0.1 million and $0.2 million for the three months ended June 30, 2018 and 2017, respectively. The net effect of amortization of acquired above‑market and below‑market leases resulted in a net decrease in rental revenue of $0.3 million and $0.5 million for the six months

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ended June 30, 2018 and 2017, respectively. The estimated amortization of acquired favorable and unfavorable leases for each of the five succeeding fiscal years ending December 31 is as follows (unaudited and in thousands):


	Net Rental Revenue		Rental Expense
	Decreases		Decreases
2018 (July - December)	$	302	$	108
2019		479		216
2020		647		216
2021		46		216
2022		17		216
Thereafter		17		823
Total	$	1,508	$	1,795

Net amortization of all other identified intangible assets and liabilities was $4.3 million and $4.6 million for the three months ended June 30, 2018 and 2017, respectively. Net amortization of all other identified intangible assets and liabilities was $8.3 million and $9.3 million for the six months ended June 30, 2018 and 2017, respectively. The estimated net amortization of all other identified intangible assets and liabilities for each of the five succeeding fiscal years ending December 31 is as follows (unaudited and in thousands):


2018 (July - December)	$	6,226
2019		11,965
2020		11,379
2021		10,137
2022		9,910
Thereafter		38,249
Total	$	87,866

4. Real Estate Assets and Construction in Progress

The following is a summary of properties owned or leased by the Company as of June 30, 2018 and December 31, 2017 (in thousands):

As of June 30, 2018 (unaudited):


			Buildings,
			Improvements		Construction
Property Location	Land		and Equipment		in Progress		Total Cost
Atlanta, Georgia (Atlanta-Metro)	$	20,416	$	463,246	$	30,336	$	513,998
Irving, Texas		8,606		325,474		94,348		428,428
Richmond, Virginia		2,180		253,122		65,797		321,099
Chicago, Illinois		9,400		98,366		134,579		242,345
Suwanee, Georgia (Atlanta-Suwanee)		3,521		168,813		3,834		176,168
Ashburn, Virginia (1)		17,326		57,822		122,651		197,799
Piscataway, New Jersey		7,466		84,745		39,411		131,622
Santa Clara, California (2)		—		97,610		7,112		104,722
Dulles, Virginia		3,154		76,521		4,143		83,818
Sacramento, California		1,481		64,476		77		66,034
Leased Facilities (3)		—		56,372		8,478		64,850
Fort Worth, Texas		9,078		18,394		36,094		63,566
Princeton, New Jersey		20,700		33,367		428		54,495
Phoenix, Arizona (1)		—		—		28,691		28,691
Hillsboro, Oregon (1)		—		—		34,420		34,420
Manassas, Virginia (1)		—		—		39,151		39,151
Other (4)		2,213		35,542		216		37,971
	$	105,541	$	1,833,870	$	649,766	$	2,589,177

(1)

Represent 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.

(2)

Owned facility subject to long-term ground sublease.

(3)

Includes 11 facilities. All facilities are leased, including those subject to capital leases.

(4)

Consists of Miami, FL; Lenexa, KS; and Overland Park, KS facilities.

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As of December 31, 2017:


			Buildings,
			Improvements		Construction
Property Location	Land		and Equipment		in Progress		Total Cost
Atlanta, Georgia (Atlanta-Metro)	$	20,416	$	452,836	$	28,614	$	501,866
Irving, Texas		8,606		276,894		86,320		371,820
Richmond, Virginia		2,180		254,603		61,888		318,671
Chicago, Illinois		9,400		81,463		135,479		226,342
Suwanee, Georgia (Atlanta-Suwanee)		3,521		165,915		3,620		173,056
Ashburn, Virginia (1)		—		—		106,952		106,952
Piscataway, New Jersey		7,466		83,251		37,807		128,524
Santa Clara, California (2)		—		100,028		6,989		107,017
Dulles, Virginia		3,154		76,239		3,565		82,958
Sacramento, California		1,481		64,251		58		65,790
Leased Facilities (3)		—		59,460		5,534		64,994
Fort Worth, Texas		9,079		17,894		33,774		60,747
Princeton, New Jersey		20,700		32,948		451		54,099
Phoenix, Arizona (1)		—		—		27,402		27,402
Hillsboro, Oregon (1)		—		—		29,278		29,278
Other (4)		2,213		35,505		88		37,806
	$	88,216	$	1,701,287	$	567,819	$	2,357,322

(1)

(2)

Owned facility subject to long-term ground sublease.

(3)

Includes 11 facilities. All facilities are leased, including those subject to capital leases.

(4)

Consists of Miami, FL; Lenexa, KS; Overland Park, KS; and Duluth, GA facilities.

5. Debt

Below is a listing of the Company’s outstanding debt, including capital leases and lease financing obligations, as of June 30, 2018 and December 31, 2017 (in thousands):


	Weighted Average
	Coupon Interest Rate at		June 30,		December 31,
	June 30, 2018	Maturities	2018		2017
	(unaudited)		(unaudited)
Unsecured Credit Facility
Revolving Credit Facility	3.60%	December 17, 2021	$	—	$	131,000
Term Loan I	3.49%	December 17, 2022		350,000		350,000
Term Loan II	3.51%	April 27, 2023		350,000		350,000
Senior Notes	4.75%	November 15, 2025		400,000		400,000
Lenexa Mortgage	4.10%	May 1, 2022		1,834		1,866
Capital Lease and Lease Financing Obligations	1.96%	2019		4,383		8,699
	3.95%			1,106,217		1,241,565
Less net debt issuance costs				(10,843)		(11,636)
Total outstanding debt, net			$	1,095,374	$	1,229,929

Credit Facilities, Senior Notes and Mortgage Notes Payable

(a) Unsecured Credit Facility – In December 2017, the Company executed an amendment to its amended and restated unsecured credit facility (the “unsecured credit facility”), increasing the total capacity to $1.52 billion and extending the term. The unsecured credit facility includes a $350 million term loan which matures on December 17, 2022, a $350 million term loan which matures on April 27, 2023, and an $820 million revolving credit facility which matures on December 17, 2021, with a one year extension option. Amounts outstanding under the amended unsecured credit facility

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bear interest at a variable rate equal to, at the Company’s election, LIBOR or a base rate, plus a spread that will vary depending upon the Company’s leverage ratio. For revolving credit loans, the spread ranges from 1.55% to 2.15% for LIBOR loans and 0.55% to 1.15% for base rate loans. For term loans, the spread ranges from 1.50% to 2.10% for LIBOR loans and 0.50% to 1.10% for base rate loans. The unsecured credit facility also includes a $400 million accordion feature.

Under the unsecured credit facility, the capacity may be increased from the current capacity of $1.52 billion to $1.92 billion subject to certain conditions set forth in the credit agreement, including the consent of the administrative agent and obtaining necessary commitments. The Company is also required to pay a commitment fee to the lenders assessed on the unused portion of the unsecured revolving credit facility. At the Company’s election, it can prepay amounts outstanding under the unsecured credit facility, in whole or in part, without penalty or premium.

The Company’s ability to borrow under the amended unsecured credit facility is subject to ongoing compliance with a number of customary affirmative and negative covenants, including limitations on liens, mergers, consolidations, investments, distributions, asset sales and affiliate transactions, as well as the following financial covenants: (i) the Operating Partnership's and its subsidiaries' consolidated total unsecured debt plus any capitalized lease obligations with respect to the unencumbered asset pool properties may not exceed 60% of the unencumbered asset pool value (or 65% of the unencumbered asset pool value for up to two consecutive fiscal quarters immediately following a material acquisition for which the Operating Partnership has provided written notice to the Agent; provided the two fiscal quarter period includes the quarter in which the material acquisition was consummated); (ii) the unencumbered asset pool debt yield cannot be less than 14% (or 12.5% for the two consecutive fiscal quarters immediately following a material acquisition for which the Operating Partnership has provided written notice to the Agent; provided the two fiscal quarter period includes the quarter in which the material acquisition was consummated); (iii) QTS must maintain a minimum fixed charge coverage ratio (defined as the ratio of consolidated EBITDA, subject to certain adjustments, to consolidated fixed charges) for the prior two most recently-ended calendar quarters of 1.70 to 1.00; (iv) QTS must maintain a maximum debt to gross asset value (as defined in the amended and restated agreement) ratio of 60% (or 65% for the two consecutive fiscal quarters immediately following a material acquisition for which the Operating Partnership has provided written notice to the Agent; provided the two fiscal quarter period includes the quarter in which the material acquisition was consummated); (v) QTS must maintain tangible net worth (as defined in the amended and restated agreement) cannot be less than the sum of $1,209,000,000 plus 75% of the net proceeds from any subsequent equity offerings; and (vi) a maximum distribution payout ratio of the greater of (i) 95% of the Company’s Funds from Operations (as defined in the amended and restated agreement) and (ii) the amount required for the Company to qualify as a REIT under the Code.

The availability under the revolving credit facility is the lesser of (i) $820 million, (ii) 60% of the unencumbered asset pool capitalized value (or 65% of the unencumbered asset pool capitalized value for the two consecutive fiscal quarters immediately following a material acquisition for which the Operating Partnership has provided written notice to the Agent; provided the two fiscal quarter period includes the quarter in which the material acquisition was consummated) and (iii) the amount resulting in an unencumbered asset pool debt yield of 14% (or 12.5% for the two consecutive fiscal quarters immediately following a material acquisition for which the Operating Partnership has provided written notice to the Agent; provided the two fiscal quarter period includes the quarter in which the material acquisition was consummated). In the case of clauses (ii) and (iii) of the preceding sentence, the amount available under the revolving credit facility is adjusted to take into account any other unsecured debt and certain capitalized leases. A material acquisition is an acquisition of properties or assets with a gross purchase price equal to or in excess of 15% of the Operating Partnership's gross asset value (as defined in the amended and restated agreement) as of the end of the most recently ended quarter for which financial statements are publicly available. The availability of funds under the unsecured credit facility depends on compliance with certain covenants.

As of June 30, 2018, the Company had outstanding $700 million of indebtedness under the unsecured credit facility, all of which was outstanding under the term loans, exclusive of net debt issuance costs of $5.2 million. There were no outstanding borrowings on the Company’s unsecured revolving credit facility as of June 30, 2018. In connection with the unsecured credit facility, as of June 30, 2018, the Company had letters of credit outstanding aggregating to $4.1 million. As of June 30, 2018, the weighted average interest rate for amounts outstanding under the unsecured credit facility, including the effects of interest rate swaps, was 3.50%.

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The Company has entered into interest rate swap agreements with an aggregate notional amount of $400 million. See Note 6 – ‘Interest Rate Swaps’ for additional details.

(b) Senior Notes – On November 8, 2017, the Operating Partnership and QTS Finance Corporation, a subsidiary of the Operating Partnership formed solely for the purpose of facilitating the offering of the 5.875% Senior Notes due 2022 (collectively, the “Issuers”), the Company and certain of its other subsidiaries entered into a purchase agreement pursuant to which the Issuers issued $400 million aggregate principal amount of 4.75% Senior Notes due November 15, 2025 (the “Senior Notes”) in a private offering. The Senior Notes have an interest rate of 4.750% per annum and were issued at a price equal to 100% of their face value. The net proceeds from the offering were used to fund the redemption of, and satisfy and discharge the indenture pursuant to which the Issuers issued, all of their outstanding 5.875% Senior Notes due 2022 and to repay a portion of the amount outstanding under the Company’s unsecured revolving credit facility. As of June 30, 2018, the outstanding net debt issuance costs associated with the Senior Notes were $5.6 million.

The Senior Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all of the Operating Partnership’s existing subsidiaries (other than foreign subsidiaries and receivables entities) and future subsidiaries that guarantee any indebtedness of QTS Realty Trust, Inc., the Issuers or any other subsidiary guarantor, other than QTS Finance Corporation, the co-issuer of the Senior Notes. QTS does not guarantee the Senior Notes and will not be required to guarantee the Senior Notes except under certain circumstances. The offering was conducted pursuant to Rule 144A of the Securities Act of 1933, as amended, and the Senior Notes were issued pursuant to an indenture, dated as of November 8, 2017, among QTS, the Issuers, the guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee.

The annual remaining principal payment requirements as of June 30, 2018 per the contractual maturities and excluding extension options, capital leases and lease financing obligations, are as follows (unaudited and in thousands):


2018	$	28
2019		68
2020		71
2021		74
2022		350,077
Thereafter		751,516
Total	$	1,101,834

As of June 30, 2018, the Company was in compliance with all of its covenants.

Capital Leases

The Company has historically entered into capital leases for certain equipment. In addition, through its acquisition of Carpathia on June 16, 2015, the Company acquired capital leases of both equipment and certain properties. Total outstanding liabilities for capital leases were $3.9 million as of June 30, 2018, of which $2.9 million were assumed through the Carpathia acquisition, all of which was related to the lease of real property. Carpathia had entered into capital lease arrangements for data center space under two lease agreements expiring in 2018 and 2019 at its Harrisonburg, Virginia and Ashburn, Virginia locations. Total recurring monthly payments range from approximately $0.2 million to $0.5 million during the terms of the leases, in addition to payments made for utilities. Depreciation related to the associated assets for the capital leases is included in depreciation and amortization expense in the Statements of Operations and Statements of Comprehensive Income.

Lease Financing Obligations

The Company, through its acquisition of Carpathia has a lease financing agreement in connection with a $4.8 million tenant improvement allowance on one of its data center lease agreements. The financing requires monthly payments of principal and interest of less than $0.1 million through February 2019. The outstanding balance on the financing

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agreement was $0.5 million as of June 30, 2018. Depreciation expense on the related leasehold improvements is included in depreciation and amortization expense in the Statements of Operations.

The following table summarizes the Company’s combined future payment obligations, excluding interest, as of June 30, 2018, on the capital leases and lease financing obligations above (unaudited and in thousands):


2018	$	3,301
2019		956
2020		117
2021		9
2022		—
Thereafter		—
Total	$	4,383

6. Interest Rate Swaps

The Company’s objectives in using interest rate swaps are to reduce variability in interest expense and to manage exposure to adverse interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The Company reflects its forward interest rate swap agreements, which are designated as cash flow hedges, at fair value as either assets or liabilities on the consolidated balance sheets within the “Other assets, net” or “Advance rents, security deposits and other liabilities” line items, as applicable. As of June 30, 2018, the fair value of interest rate swaps was $10.0 million, which was recorded within the “Other assets, net” line item of the consolidated balance sheet.

The forward interest rate swap agreements are derivatives that currently qualify for hedge accounting whereby the Company records the effective portion of changes in fair value of the interest rate swaps in accumulated other comprehensive income or loss on the consolidated balance sheets and statement of comprehensive income which is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Any ineffective portion of a derivative's change in fair value is immediately recognized within net income. The amount reclassified from other comprehensive income to interest expense on the consolidated statements of operations was $0.1 million and $0.5 million for the three and six months ended June 30, 2018. There was no ineffectiveness recognized for the three and six months ended June 30, 2018. No amounts were recorded in other comprehensive income or loss on the consolidated financial statements as of and for the three and six months ended June 30, 2017. During the subsequent twelve months, beginning July 1, 2018, we estimate that $1.5 million will be reclassified from other comprehensive income as a reduction to interest expense.

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Interest rate derivatives and their fair values as of June 30, 2018 and December 31, 2017 were as follows (unaudited and in thousands):


				Fixed One Month
Notional Amount				LIBOR rate per			Fair Value
June 30, 2018		December 31, 2017		annum	Effective Date	Expiration Date	June 30, 2018		December 31, 2017
$	25,000	$	25,000	1.989%	January 2, 2018	December 17, 2021	$	606	$	100
	100,000		100,000	1.989%	January 2, 2018	December 17, 2021		2,436		401
	75,000		75,000	1.989%	January 2, 2018	December 17, 2021		1,826		298
	50,000		50,000	2.033%	January 2, 2018	April 27, 2022		1,272		158
	100,000		100,000	2.029%	January 2, 2018	April 27, 2022		2,575		337
	50,000		50,000	2.033%	January 2, 2018	April 27, 2022		1,279		155
$	400,000	$	400,000				$	9,994	$	1,449

7. Restructuring

On February 20, 2018, the Company announced a strategic growth plan to realign its product offerings around its hyperscale and hybrid colocation product offerings, along with technology and services from the Company’s cloud and managed services business that support hyperscale and hybrid colocation customers. As part of the strategic growth plan, the Company is narrowing its focus around certain of its cloud and managed services offerings and on April 24, 2018, the Company entered into definitive agreements with General Datatech, L.P. (“GDT”), an international provider of managed IT solutions, pursuant to which QTS agreed to assign to GDT certain assets, contracts and liabilities associated with QTS’ cloud and managed services products. These assets primarily consist of customer contracts and certain physical equipment. As of June 30, 2018, QTS had transitioned a portion of the assets, contracts and liabilities to GDT, and expects to complete the transfer of the remaining assets, contracts and liabilities by the end of 2018. In connection with the definitive agreements, the Company and GDT also agreed to an ongoing relationship where the Company will lease data center space to GDT as well as provide ongoing services to GDT to support the transitioned customers. The Company has incurred and will continue to incur various expenses associated with the strategic growth plan through 2018, with such costs included in the “Restructuring” line item on the consolidated income statement.

Restructuring expenses incurred during the six months ended June 30, 2018 are as follows (unaudited and in thousands):


				Equity-Based
				Compensation and			Product-Related
	Severance			Professional Fees			and Other			Total
Restructuring expense	$	5,287	(1)	$	7,071	(2)	$	7,602	(3)	$	19,960

(1) For the three months ended June 30, 2018, we incurred expenses of $3,039. As of June 30, 2018, the outstanding liability for accrued but unpaid severance expense was $2,863, which is included in “Accounts payable and accrued liabilities” line item of the consolidated balance sheets.

(2) For the three months ended June 30, 2018, we incurred expenses of $5,135. As of June 30, 2018, there was no outstanding liability associated with this cost category.

(3) Product-related and other expenses primarily relate to impairment write-downs of depreciated property as well as losses incurred on the sale of equipment. For the three months ended June 30, 2018, we incurred expenses of $3,256. As of June 30, 2018, there was no outstanding liability associated with this cost category.

In addition to the expenses incurred to date, the Company expects to incur a total of approximately $5 million to $10 million in expenses associated with this strategic growth plan through December 31, 2018. This does not include any charges that may be taken in future periods on remaining assets that are being transitioned to the Company’s strategic partner, as those specific assets have not yet been identified.

8. Commitments and Contingencies

The Company is subject to various routine legal proceedings and other matters in the ordinary course of business. The Company currently does not have any litigation that would have material adverse impact on the Company’s financial statements.

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9. 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, 2018, the Operating Partnership had four classes of limited partnership units outstanding: Series A Preferred Stock Units, Series B Convertible Preferred Stock 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 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 upon exercise of options to purchase Class A common stock. 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 six months ended June 30, 2018 (unaudited) :


	2010 Equity Incentive Plan					2013 Equity Incentive Plan
				Weighted					Weighted				Weighted
		Weighted		average			Weighted		average				average
	Number of	average		fair			average		fair		Restricted		grant date
	Class O units	exercise price		value		Options	exercise price		value		Stock		value
Outstanding at December 31, 2017	568,040	$	23.52	$	5.00	1,369,270	$	38.18	$	7.80	381,864		$	46.37
Granted	—		—		—	672,549		34.03		5.63	347,444			35.27
Exercised/Vested (1)	(461,136)		23.30		4.73	(813)		22.74		4.06	(141,631)			47.85
Cancelled/Expired	—		—		—	—		—		—	(43,877)	(2)		46.53
Outstanding at June 30, 2018	106,904	$	24.47	$	6.16	2,041,006	$	36.82	$	7.08	543,800		$	38.88

(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)

Includes restricted Class A common stock surrendered by certain employees to satisfy their 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 six months ended June 30, 2018 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.


		Six Months Ended June 30, 2018
Fair value of restricted stock granted		$34.03 - $54.01
Fair value of options granted		$5.55 - $5.64
Expected term (years)		5.5 - 6.0
Expected volatility		28%
Expected dividend yield		4.82%
Expected risk-free interest rates		2.69% - 2.73%

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The following tables summarize information about awards outstanding as of June 30, 2018 (unaudited).


	Operating Partnership Awards Outstanding
				Weighted average
			Awards	remaining
	Exercise prices		outstanding	vesting period (years)
Class O Units	$	20.00 - 25.00	106,904	—
Total Operating Partnership awards outstanding			106,904


	QTS Realty Trust, Inc. Awards Outstanding
				Weighted average
			Awards	remaining
	Exercise prices		outstanding	vesting period (years)
Restricted stock	$	—	543,800	1.8
Options to purchase Class A common stock	$	21.00 - 50.66	2,041,006	1.2
Total QTS Realty Trust, Inc. awards outstanding			2,584,806

As of June 30, 2018, 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 June 30, 2018 there were approximately 0.5 million and 0.9 million nonvested restricted Class A common stock and options to purchase Class A common stock outstanding, respectively. As of June 30, 2018 the Company had $21.7 million of unrecognized equity-based compensation expense which will be recognized over a remaining weighted-average vesting period of 1.3 years. The total intrinsic value of the awards outstanding at June 30, 2018 was $35.0 million.

Dividends and Distributions

The following table presents quarterly cash dividends and distributions paid to QTS’ common and preferred stockholders and the Operating Partnership’s unit holders for the six months ended June 30, 2018 (unaudited):


Six Months Ended June 30, 2018
				Aggregate
		Per Share and		Dividend/Distribution
Record Date	Payment Date	Per Unit Rate		Amount (in millions)
Common Stock
December 5, 2017	January 5, 2018	$	0.39	$	22.2
March 22, 2018	April 5, 2018	$	0.41	$	23.7
				$	45.9

Series A Preferred Stock
April 5, 2018	April 16, 2018	$	0.15	$	0.6

Additionally, on July 6, 2018, the Company paid its regular quarterly cash dividend of $0.41 per common share and per unit in the Operating Partnership to stockholders and unit holders of record as of the close of business on June 20, 2018.

Additionally, on July 16, 2018, the Company paid a quarterly cash dividend of approximately $0.45 per share on its Series A Preferred Stock.

Equity Issuances

In March 2017, QTS 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. The Company issued no shares under the ATM Program during the six months ended June 30, 2018.

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On March 15, 2018, QTS issued 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, which included 280,000 shares of the underwriters’ partial exercise of their option to purchase additional shares. The Company used the net proceeds of approximately $103.2 million to repay amounts outstanding under its unsecured revolving credit facility. In connection with the issuance of the Series A Preferred Stock, on March 15, 2018 the Operating Partnership issued to the Company 4,280,000 Series A Preferred Units, which have economic terms that are substantially similar to the Company’s Series A Preferred Stock. The Series A Preferred Units were issued in exchange for the Company’s contribution of the net offering proceeds of the offering of the Series A Preferred Stock to the Operating Partnership.

Dividends on the Series A Preferred Stock are payable quarterly in arrears on or about the 15th day of each January, April, July and October. The first dividend on the Series A Preferred Stock was paid on April 16, 2018, in the amount of $0.14844 per share. The Series A Preferred Stock does not have a stated maturity date and is not subject to any sinking fund or mandatory redemption provisions. Upon liquidation, dissolution or winding up, the Series A Preferred Stock will rank senior to common stock and pari passu with the Series B Preferred Stock with respect to the payment of distributions and other amounts. Except in instances relating to preservation of QTS’s qualification as a REIT or pursuant to the Company’s special optional redemption right, the Series A Preferred Stock is not redeemable prior to March 15, 2023. 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.

Upon the occurrence of a change of control, the Company has a special optional redemption right that enables it to redeem the Series A Preferred Stock, in whole, at any time, or in part, from time to time, within 120 days after the first date on which a change of control has occurred resulting in neither QTS nor the surviving entity having a class of common shares listed on the NYSE, NYSE Amex, or NASDAQ or the acquisition of beneficial ownership of its stock entitling a person to exercise more than 50% of the total voting power of all our stock entitled to vote generally in election of directors. The special optional redemption price is $25.00 per share, plus any accrued and unpaid dividends (whether or not declared) to, but not including, the date of redemption.

Upon the occurrence of a change of control, holders will have the right (unless the Company has elected to exercise its special optional redemption right to redeem their Series A Preferred Stock) to convert some or all of such holder’s Series A Preferred Stock into a number of shares of Class A common stock, par value $0.01 per share, equal to the lesser of:

the quotient obtained by dividing (i) the sum of the $25.00 liquidation preference plus the amount of any accrued and unpaid dividends (whether or not declared) to, but not including, the change of control conversion date (unless the change of control conversion date is after a record date for a Series A Preferred Stock dividend payment and prior to the corresponding Series A Preferred Stock dividend payment date, in which case no additional amount for such accrued and unpaid dividend will be included in this sum) by (ii) the Common Stock Price; and

1.46929 (i.e., the Share Cap);

subject, in each case, to certain adjustments and provisions for the receipt of alternative consideration of equivalent value as described in the prospectus supplement for the Series A Preferred Stock.

On June 20, 2018, QTS issued 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, which included 412,500 shares the underwriters purchased pursuant to the exercise of their overallotment option in full. The Company used the net proceeds of approximately $304 million to repay amounts outstanding under its unsecured revolving credit facility. In connection with the issuance of the Series B Preferred Stock, on June 25, 2018 the Operating Partnership issued to the Company 3,162,500 Series B Preferred Units, which have economic terms that are substantially similar to the Company’s Series B Preferred Stock. The Series B Preferred Units were issued in exchange for the Company’s contribution of the net offering proceeds of the offering of the Series B Preferred Stock to the Operating Partnership.

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Dividends on the Series B Preferred Stock are payable quarterly in arrears on or about the 15th day of each January, April, July and October. The first dividend on the Series B Preferred Stock will be paid on October 15, 2018. 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 initial conversion rate is 2.1264 shares of the Company’s Class A common stock per share of Series B Preferred Stock. The Series B Preferred Stock does not have a stated maturity date. Upon liquidation, dissolution or winding up, the Series B Preferred Stock will rank senior to common stock and pari passu with the Series A Preferred Stock with respect to the payment of distributions and other amounts. The Series B Preferred Stock will not be 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.

If a holder converts its shares of Series B Preferred Stock at any time beginning at the opening of business on the trading day immediately following the effective date of a fundamental change (as described in the prospectus supplement) and ending at the close of business on the 30th trading day immediately following such effective date, the holder will automatically receive a number of shares of the Company’s Class A common stock equal to the greater of:

the sum of (i) a number of shares of the Company’s Class A common stock, as may be adjusted, as described in the Articles Supplementary for the 6.50% Series B Cumulative Convertible Perpetual Preferred Stock filed with the State Department of Assessments and Taxation of Maryland on June 22, 2018 (the “Articles Supplementary”) and (ii) the make-whole premium described in the Articles Supplementary; and

a number of shares of the Company’s Class A common stock equal to the lesser of (i) the liquidation preference divided by the average of the daily volume weighted average prices of the Company’s Class A common stock for ten days preceding the effective date of a fundamental change and (ii) 5.1020 (subject to adjustment).

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 the 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 the 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.

10. Related Party Transactions

The Company periodically executes transactions with entities affiliated with its Chairman and Chief Executive Officer. Such transactions include automobile, furniture and equipment purchases as well as building operating lease payments and receipts, and reimbursement for the use of a private aircraft service by the Company’s officers and directors.

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The transactions which occurred during the three and six months ended June 30, 2018 and 2017 are outlined below (unaudited and in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Tax, utility, insurance and other reimbursement	$	135	$	206	$	396	$	349
Rent expense		253		254		507		508
Capital assets acquired		46		119		204		352
Total	$	434	$	579	$	1,107	$	1,209

11. Noncontrolling Interest

Concurrently with the completion of the IPO, QTS consummated a series of transactions pursuant to which QTS became the sole general partner and majority owner of QualityTech, LP, which then became its operating partnership. The previous owners of QualityTech, LP retained 21.2% ownership of the Operating Partnership as of the date of the IPO.

Commencing at any time beginning November 1, 2014, at the election of the holders of the noncontrolling interest, the Class A units of the Operating Partnership are redeemable for cash or, at the election of the Company, Class A common stock of the Company on a one-for-one basis. As of June 30, 2018, the noncontrolling ownership interest percentage of QualityTech, LP was approximately 11.5%.

12. Earnings per share of QTS Realty Trust, Inc.

Basic income per share is calculated by dividing the net income attributable to common shares by the weighted average number of common shares outstanding during the period. Diluted income per share adjusts basic income per share for the effects of potentially dilutive common shares. Unvested restricted stock awards contain non-forfeitable rights to dividends and thus are participating securities and are included in the computation of earnings per share pursuant to the two-class method for all periods presented. The two-class method is an earnings allocation formula that treats a participating security as having rights to undistributed earnings that would otherwise have been available to common stockholders. Accordingly, service-based restricted stock awards were included in the calculation of earnings per share using the two-class method for all periods presented.

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The computation of basic and diluted net income per share is as follows (in thousands, except per share data, and unaudited):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Numerator:
Net income (loss)	$	(6,433)	$	4,608	$	(6,685)	$	10,176
Loss (income) attributable to noncontrolling interests		1,002		(568)		1,031		(1,259)
Preferred stock dividends		(2,248)		—		(2,576)
Earnings attributable to participating securities		(227)		356		(485)		814
Net income (loss) available to common stockholders after allocation of participating securities	$	(7,906)	$	4,396	$	(8,715)	$	9,731
Denominator:
Weighted average shares outstanding - basic		50,452		47,666		50,366		47,562
Effect of Class A and Class RS partnership units		—		6,783		—		6,783
Effect of Class O units and options to purchase Class A common stock on an "as if" converted basis		—		1,009		—		991
Weighted average shares outstanding - diluted		50,452		55,458		50,366		55,336

Basic net income (loss) per share	$	(0.16)	$	0.08	$	(0.17)	$	0.18

Diluted net income (loss) per share	$	(0.16)	$	0.08	$	(0.17)	$	0.17

Note: The table above does not include Class A partnership units of 6.7 million and 6.8 million for the three months ended June 30, 2018 and 2017, respectively, 0.2 million reflecting the effects of Class O units and options to purchase common stock on an "as if" converted basis for the three months ended June 30, 2018, and 0.4 million reflecting the effects of Series B Convertible preferred stock on an “as if” converted basis for the three months ended June 30, 2018, as their respective inclusion would have been antidilutive. Does not include Class A partnership units of 6.6 million and 6.8 million for the six months ended June 30, 2018 and 2017, respectively, 0.4 million reflecting the effects of Class O units and options to purchase common stock on an "as if" converted basis for the six months ended June 30, 2018, and 0.2 million reflecting the effects of Series B Convertible preferred stock on an “as if” converted basis for the six months ended June 30, 2018, as their respective inclusion would have been antidilutive.

13. Contracts with Customers

Future minimum payments to be received under non-cancelable customer contracts (inclusive of payments for contracts which have not yet commenced, and exclusive of recoveries of operating costs from customers) are as follows for the years ending December 31 (unaudited and in thousands):


2018 (July - December)	$	173,924
2019		304,475
2020		234,246
2021		185,569
2022		117,924
Thereafter		137,210
Total	$	1,153,348

14. Fair Value of Financial Instruments

ASC Topic 825, Financial Instruments , requires disclosure of fair value information about financial instruments, whether or not recognized in the consolidated balance sheets, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based upon the application of discount rates to estimated future cash flows based upon market yields or by using other valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, fair values are not necessarily

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indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on estimated fair value amounts.

Short-term instruments: The carrying amounts of cash and cash equivalents and restricted cash approximate fair value.

Interest rate swaps: Currently, the Company uses interest rate swaps to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

To comply with the provisions of fair value accounting guidance, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of June 30, 2018, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. The Company does not have any fair value measurements on a recurring basis using significant unobservable inputs (Level 3) as of June 30, 2018 or December 31, 2017.

Credit facility and Senior Notes: The Company’s unsecured credit facility did not have interest rates which were materially different than current market conditions and therefore, the fair value approximated the carrying value. The fair value of the Company’s Senior Notes was estimated using Level 2 “significant other observable inputs,” primarily based on quoted market prices for the same or similar issuances. At June 30, 2018, the fair value of the Senior Notes was approximately $374.5 million.

Other debt instruments: The fair value of the Company’s other debt instruments (including capital leases, lease financing obligations and mortgage notes payable) were estimated in the same manner as the unsecured credit facility above. Similarly, each of these instruments did not have interest rates which were materially different than current market conditions and therefore, the fair value of each instrument approximated the respective carrying values.

15. Subsequent Events

On July 6, 2018, the Company paid its regular quarterly cash dividend of $0.41 per common share and per unit in the Operating Partnership to stockholders and unit holders of record as of the close of business on June 20, 2018.

On July 16, 2018, the Company paid a quarterly cash dividend of approximately $0.45 per share on its 7.125% Series A Preferred Stock to holders of Series A Preferred Stock of record as of the close of business on June 29, 2018.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation s

The following discussion and analysis presents the financial condition and results of operations of QTS Realty Trust, Inc., a Maryland corporation, (“QTS”), which includes the operations of QualityTech, LP (the “Operating Partnership”), for the three and six months ended June 30, 2018 and 2017. You should read the following discussion and analysis in conjunction with QTS’ and the Operating Partnership’s accompanying consolidated financial statements and related notes contained elsewhere in this Form 10-Q. We believe it is important for investors to understand the few differences between the financial statements of QTS and the Operating Partnership. See “Explanatory Note” for an explanation of these few differences. Since the financial data presented in this Item 2 does not contain any differences between QTS and the Operating Partnership, all periods presented reflect the operating results of both QTS and the Operating Partnership.

Forward-Looking Statements

Some of the statements contained in this Form 10-Q constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In particular, statements pertaining to our capital resources, portfolio performance, results of operations, anticipated growth in our funds from operations and anticipated market conditions contain forward-looking statements. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You also can identify forward-looking statements by discussions of strategy, plans or intentions.

The forward-looking statements contained in this Form 10-Q reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from those expressed in any forward-looking statement. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:

adverse economic or real estate developments in our markets or the technology industry;

obsolescence or reduction in marketability of our infrastructure due to changing industry demands;

global, national and local economic conditions;

our ability to successfully execute our strategic growth plan and realize its expected benefits;

risks related to our international operations;

difficulties in identifying properties to acquire and completing acquisitions;

our failure to successfully develop, redevelop and operate acquired properties or lines of business;

significant increases in construction and development costs;

the increasingly competitive environment in which we operate;

defaults on, or termination or non-renewal of, leases by customers;

decreased rental rates or increased vacancy rates;

increased interest rates and operating costs, including increased energy costs;

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financing risks, including our failure to obtain necessary outside financing;

dependence on third parties to provide Internet, telecommunications and network connectivity to our data centers;

our failure to qualify and maintain QTS’ qualification as a real estate investment trust (“REIT”);

environmental uncertainties and risks related to natural disasters;

financial market fluctuations; and

changes in real estate and zoning laws, revaluations for tax purposes and increases in real property tax rates.

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. Any forward-looking statement speaks only as of the date on which it was made. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. For a further discussion of these and other factors that could cause our future results to differ materially from any forward-looking statements, see the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017 and Item 1A. “Risk Factors” of this Form 10-Q.

Overview

We are a leading provider of secure, compliant data center and managed services solutions. We refer to our primary data center products as Hyperscale and Hybrid Colocation. Our integrated technology platform provides flexible, scalable, secure IT solutions for web and IT applications.

On February 20, 2018, we announced a strategic growth plan to realign our product offerings around our hyperscale and hybrid colocation product offerings, along with technology and services from our cloud and managed services business that support hyperscale and hybrid colocation customers. As part of the strategic growth plan we are narrowing our focus around certain of our cloud and managed services offerings, including some colocation revenue attached to certain customers in the cloud and managed services business that we expect will not remain with the Company post-transition. Also in connection with the strategic growth plan, on April 24, 2018, we entered into definitive agreements with General Datatech, L.P. (“GDT”), an international provider of managed IT solutions, pursuant to which we agreed to assign to GDT certain assets, contracts and liabilities associated with our cloud and managed services products in exchange for, certain cash payments. These assets, contracts and liabilities primarily consist of customer contracts and certain physical equipment. However, after August 31, 2018, we have no obligation to transfer any assets, contracts or liabilities that have not been transferred by such date, and we have not yet determined as of June 30, 2018 whether all of such assets, contracts or liabilities or only a portion thereof ultimately will be transferred. Under the agreements, we will provide support services to GDT, and GDT will expand its colocation presence within our facilities to support customers for the environments that reside in our facilities.

We operate a portfolio of 26 data centers located throughout the United States, Canada, Europe and Asia. Within the United States, we are located in some of the top U.S. data center markets plus other high-growth markets. Our data centers are highly specialized, full-service, mission-critical facilities used by our customers to house, power and cool the networking equipment and computer systems that support their most critical business processes. We believe that our data centers are best-in-class and engineered to adhere to the highest specifications commercially available to customers, providing fully redundant, high-density power and cooling sufficient to meet the needs of major national and international companies and organizations. This is in part reflected by our operating track record of “five-nines” (99.999%) reliability and by our diverse customer base, including financial institutions, healthcare companies, government agencies, communications service providers, software companies and global Internet companies.

We account for the operations of all of our properties in one reporting segment.

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As of June 30, 2018, QTS owned an approximate 88.5% ownership interest in the Operating Partnership. Substantially all of our assets are held by, and our operations are conducted through, the Operating Partnership.

The Operating Partnership is a Delaware limited partnership formed on August 5, 2009 and was QTS’ historical predecessor prior to the initial public offering (“IPO”), having operated the Company’s business until the IPO.

We believe that QTS has operated and has been organized in conformity with the requirements for qualification and taxation as a REIT commencing with our taxable year ended December 31, 2013. Our qualification as a REIT, and maintenance of such qualification, depends upon our ability to meet, on a continuing basis, various complex requirements under the Internal Revenue Code of 1986, as amended (the “Code”) relating to, among other things, the sources of our gross income, the composition and values of our assets, our distributions to our stockholders and the concentration of ownership of our equity shares.

Our Customer Base

We provide data center solutions to a diverse set of customers. Our customer base is comprised of companies of all sizes representing an array of industries, each with unique and varied business models and needs. We serve Fortune 1000 companies as well as small and medium-sized businesses, or SMBs, including financial institutions, healthcare companies, government agencies, communications service providers, software companies and global Internet companies.

Our Hyperscale customers typically are large enterprises with significant IT expertise and specific IT requirements, including financial institutions and the world’s largest global Internet companies. Our Hybrid Colocation customers consist of a wide range of organizations, including major healthcare, telecommunications, U.S. governmental agencies and software and web-based companies.

As a result of our diverse customer base, customer concentration in our portfolio is limited. As of June 30, 2018, only five of our customers individually accounted for more than 3% of our monthly recurring revenue (“MRR”) (as defined below), with the largest customer accounting for approximately 12.1% of our MRR and the next largest customer accounting for only 5.0% of our MRR.

Our Portfolio

We develop and operate 26 data centers located throughout the United States, Canada, Europe and Asia, containing an aggregate of approximately 6.2 million gross square feet of space (approximately 94% of which is wholly owned by us), including approximately 2.7 million “basis-of-design” raised floor square feet, which represents the total data center raised floor potential of our existing data center facilities. This represents the maximum amount of space in our existing buildings that could be leased following full build-out, depending on the configuration that we deploy. We build out our data center facilities for both general use (colocation) and for executed leases that require significant amounts of space and power, depending on the needs of each facility at that time. As of June 30, 2018, this space included approximately 1,450,000 raised floor operating net rentable square feet, or NRSF, plus approximately 1.3 million square feet of additional raised floor in our development pipeline, of which approximately 67,000 NRSF is expected to become operational by December 31, 2018. Of the total 1.3 million NRSF in our development pipeline, approximately 84,000 square feet was related to customer leases which had been executed but not yet commenced. Our facilities collectively have access to approximately 674 megawatts (“MW”) of available utility power. We believe such access to power gives us a competitive advantage in redeveloping data center space, since access to power is usually the most limiting and expensive component in data center redevelopment.

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The following table presents an overview of the portfolio of operating properties that we own or lease, based on information as of June 30, 2018:


			Net Rentable Square Feet (Operating NRSF) (3)
											Available	Basis of	Current
		Gross									Utility	Design	Raised
	Year	Square	Raised	Office &	Supporting		%		Annualized		Power	("BOD")	Floor as a
Property	Acquired (1)	Feet (2)	Floor (4)	Other (5)	Infrastructure (6)	Total	Occupied (7)		Rent (8)		(MW) (9)	NRSF	% of BOD
Richmond, VA	2010	1,318,353	167,309	51,093	178,854	397,256	73.4	%	$	39,045,805	110	557,309	30.0	%
Atlanta, GA (Metro)	2006	968,695	463,986	36,953	336,266	837,205	97.7	%	$	97,058,198	72	527,186	88.0	%
Irving, TX	2013	698,000	168,160	6,981	170,323	345,464	97.6	%	$	48,812,282	140	275,701	61.0	%
Princeton, NJ	2014	553,930	58,157	2,229	111,405	171,791	100.0	%	$	10,035,602	22	158,157	36.8	%
Chicago, IL	2014	474,979	33,000	—	35,102	68,102	78.9	%	$	10,089,145	8	215,855	15.3	%
Ashburn, VA	2017	445,000	14,230	—	23,240	37,470	100.0	%	$	2,139,300	50	178,000	8.0	%
Manassas, VA	2018	118,031	—	—	—	—	—	%	$	—	24	66,324	—	%
Suwanee, GA	2005	369,822	205,608	8,697	107,128	321,433	91.6	%	$	54,920,597	36	205,608	100.0	%
Piscataway, NJ	2016	360,000	88,820	14,311	91,851	194,982	87.5	%	$	14,695,135	111	176,000	50.5	%
Fort Worth, TX	2016	261,836	10,600	—	19,438	30,038	100.0	%	$	2,078,486	50	80,000	13.3	%
Santa Clara, CA*	2007	135,322	55,905	944	45,094	101,943	73.7	%	$	18,287,837	11	80,940	69.1	%
Sacramento, CA	2012	92,644	54,595	2,794	23,916	81,305	46.1	%	$	11,759,681	8	54,595	100.0	%
Dulles, VA	2017	87,159	30,545	5,997	32,892	69,434	59.9	%	$	25,251,802	13	48,270	63.3	%
Leased facilities **	2006 & 2015	206,631	76,451	19,450	42,001	137,902	79.5	%	$	32,963,454	14	97,692	78.3	%
Other ***	Misc.	147,435	22,380	49,337	30,074	101,791	68.8	%	$	6,675,938	5	22,380	100.0	%
Total		6,237,837	1,449,746	198,786	1,247,584	2,896,116	89.2	%	$	373,813,262	674	2,744,017	52.8	%

(1)

Represents the year a property was acquired or, in the case of a property under lease, the year our initial lease commenced for the property.

(2)

With respect to our owned properties, gross square feet represents the entire building area. With respect to leased properties, gross square feet represents that portion of the gross square feet subject to our lease. Gross square feet includes 347,261 square feet of our office and support space, which is not included in operating NRSF.

(3)

Represents the total square feet of a building that is currently leased or available for lease plus developed supporting infrastructure, based on engineering drawings and estimates, but does not include space held for redevelopment or space used for our own office space.

(4)

Represents management’s estimate of the portion of NRSF of the facility with available power and cooling capacity that is currently leased or readily available to be leased to customers as data center space based on engineering drawings.

(5)

Represents the operating NRSF of the facility other than data center space (typically office and storage space) that is currently leased or available to be leased.

(6)

Represents required data center support space, including mechanical, telecommunications and utility rooms, as well as building common areas.

(7)

Calculated as data center raised floor that is subject to a signed lease for which space is occupied (1,041,205 square feet as of June 30, 2018) divided by leasable raised floor based on the current configuration of the properties (1,166,936 square feet as of June 30, 2018), expressed as a percentage.

(8)

We define annualized rent as MRR multiplied by 12. We calculate MRR as monthly contractual revenue under executed contracts as of a particular date, which includes revenue from our rental and cloud and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed contracts as of a particular date, unless otherwise specifically noted, nor does it reflect the accounting associated with any free rent, rent abatements or future scheduled rent increases.

(9)

Represents installed utility power and transformation capacity that is available for use by the facility as of June 30, 2018.

* Subject to long term ground lease.

** Includes 11 facilities. All facilities are leased, including those subject to capital leases.

*** Consists of Miami, FL; Lenexa, KS; Overland Park, KS; and Duluth, GA facilities.

Key Operating Metrics

The following sets forth definitions for our key operating metrics. These metrics may differ from similar definitions used by other companies.

Monthly Recurring Revenue (“MRR”). We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and cloud and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed contracts as of a particular date, unless otherwise specifically noted, nor does it reflect the accounting associated with any free rent, rent abatements or future scheduled rent increases.

Annualized Rent . We define annualized rent as MRR multiplied by 12.

Rental Churn . We define rental churn as the MRR lost in the period due to a customer intending to fully exit the QTS platform in the near term compared to total MRR at the beginning of the period.

Leasable Raised Floor . We define leasable raised floor as the amount of raised floor square footage that we have leased plus the available capacity of raised floor square footage that is in a leasable format as of a particular date and according to a particular product configuration. The amount of our leasable raised floor may change even without completion of new redevelopment projects due to changes in our configuration of product space.

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Percentage (%) Occupied and Billing. We define percentage occupied and billing as the raised floor square footage that is subject to a signed lease for which billing has commenced as of a particular date compared to leasable raised floor based on the current configuration of the properties as of that date, expressed as a percentage.

Booked-not-Billed. We define booked-not-billed as our customer leases that have been signed, but for which lease payments have not yet commenced.

Factors That May Influence Future Results of Operations and Cash Flows

Revenue. Our revenue growth will depend on our ability to maintain the historical occupancy rates of leasable raised floor, lease currently available space, lease new capacity that becomes available as a result of our development and redevelopment activities, attract new customers and continue to meet the ongoing technological requirements of our customers. As of June 30, 2018, we had in place customer leases generating revenue for approximately 89% of our leasable raised floor. Our ability to grow revenue also will be affected by our ability to maintain or increase rental and certain cloud and managed services rates at our properties. Future economic downturns, regional downturns or downturns in the technology industry could impair our ability to attract new customers or renew existing customers’ leases on favorable terms, or at all, and could adversely affect our customers’ ability to meet their obligations to us. Negative trends in one or more of these factors could adversely affect our revenue in future periods, which would impact our results of operations and cash flows. We also at times may elect to reclaim space from customers in a negotiated transaction where we believe that we can redevelop and/or re-lease that space at higher rates, which may cause a decrease in revenue until the space is re-leased.

Strategic Growth Plan. Our ability to successfully realign our product offerings around hyperscale and hybrid colocation as well as transition certain assets, contracts and liabilities associated with our cloud and managed services products to GDT may influence our future results of operations and cash flows. We expect a reduction in cloud and managed services revenue as we transition certain customers to GDT over the course of 2018. In addition, we will incur certain restructuring charges associated with the strategic growth plan, of which approximately $11.4 million and $20.0 million were incurred during the three and six months ended June 30, 2018, respectively.

Leasing Arrangements. As of June 30, 2018, 41% of our MRR came from customers which individually occupied greater than or equal to 6,600 square feet of space (or approximately 1 MW of power), with the remaining 59% attributable to customers utilizing less than 6,600 square feet of space. As of June 30, 2018, approximately 49% of our MRR was attributable to the metered power model, the majority of which is comprised of customers that individually occupy greater than 6,600 square feet of space. Under the metered power model, the customer pays us a fixed monthly rent amount, plus reimbursement of certain other operating costs, including actual costs of sub-metered electricity used to power its data center equipment and an estimate of costs for electricity used to power supporting infrastructure for the data center, expressed as a factor of the customer’s actual electricity usage. Fluctuations in our customers’ utilization of power and the supplier pricing of power do not significantly impact our results of operations or cash flows under the metered power model. These leases generally have a minimum term of five years. As of June 30, 2018, the remaining approximately 51% of our MRR was attributable to the gross lease or managed service model. Under this model, the customer pays us a fixed amount on a monthly basis, and does not separately reimburse us for operating costs, including utilities, maintenance, repair, property taxes and insurance, as reimbursement for these costs is factored into MRR. However, if customers incur more utility costs than their leases permit, we are able to charge these customers for overages. For leases under the gross lease or managed service model, fluctuations in our customers’ utilization of power and the prices our utility providers charge us will impact our results of operations and cash flows. These leases generally have a term of three years or less.

Scheduled Lease Expirations. Our ability to minimize rental churn and customer downgrades at renewal and to renew, lease and re-lease expiring space will impact our results of operations and cash flows. Leases which have commenced billing representing approximately 28% and 13% of our total leased raised floor are scheduled to expire during the years ending December 31, 2018 (including all month-to-month leases) and 2019, respectively. These leases also represented approximately 25% and 24%, respectively, of our annualized rent as of June 30, 2018. Given that our average rent for larger contracts tend to be at or below market rent at expiration, as a general matter, based on current market conditions, we expect that expiring rents will be at or below the then-current market rents.

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Acquisitions, Development and Financing. Our revenue growth also will depend on our ability to acquire and redevelop and/or construct and subsequently lease data center space at favorable rates. We generally fund the cost of data center acquisition, construction and/or redevelopment from our net cash provided by operations, revolving credit facility, other unsecured and secured borrowings or the issuance of additional equity. We believe that we have sufficient access to capital from our current cash and cash equivalents, and borrowings under our credit facility to fund our redevelopment projects.

Operating Expenses. Our operating expenses generally consist of direct personnel costs, utilities, property and ad valorem taxes, insurance and site maintenance costs and rental expenses on our ground and building leases. In particular, our buildings require significant power to support the data center operations conducted in them. Although substantially all of our long-term leases - leases with a term greater than three years - contain reimbursements for certain operating expenses, we will not in all instances be reimbursed for all of the property operating expenses we incur. We also incur general and administrative expenses, including expenses relating to senior management, our in-house sales and marketing organization, cloud and managed services support personnel and legal, human resources, accounting and other expenses related to professional services. We also incur additional expenses arising from being a publicly traded company, including employee equity-based compensation. Increases or decreases in our operating expenses will impact our results of operations and cash flows. We expect to incur additional operating expenses as we continue to expand.

General Leasing Activity

As disclosed above, our results may be impacted by the outcome of the strategic growth plan as we continue to transition assets, contracts and liabilities associated with our cloud and managed services products to GDT. The general leasing statistics below are presented on a consolidated basis and include the effects of the strategic growth plan incurred to date.

During the three and six months ended June 30, 2018, we entered into customer leases representing approximately $0.8 million and $2.2 million of incremental MRR, net of downgrades (and representing approximately $9.4 million and $26.1 million of incremental annualized rent, net of downgrades) at $831 and $539 per square foot, respectively. In addition, $7.2 million and $12.5 million of leasing commissions was associated with new and renewal leasing activity for the three and six months ended June 30, 2018.

During the three and six months ended June 30, 2018, we renewed leases with a total annualized rent of $22.6 million and $46.6 million at an average rent per square foot of $222 and $231, respectively, which was 4.9% and 5.1% higher than the annualized rent prior to their respective renewals. We define renewals as leases where the customer retains the same amount of space before and after renewal, which facilitates rate comparability. Customers that renew with adjustments to square feet are reflected in the net leasing activity discussed above. The rental churn rate for the three and six months ended June 30, 2018 was 1.8% and 3.5%, respectively.

During the three and six months ended June 30, 2018, we commenced customer leases representing approximately $2.6 million and $5.9 million of MRR (and representing approximately $30.8 million and $70.3 million of annualized rent) at $637 and $666 per square foot, respectively.

As of June 30, 2018, our booked-not-billed MRR balance (which represents customer leases that have been executed, but for which lease payments have not commenced as of June 30, 2018) was approximately $4.4 million, or $53.3 million of annualized rent. The booked-not-billed balance is expected to contribute an incremental $5.9 million to revenue in 2018 (representing $18.1 million in annualized revenues), an incremental $15.8 million in 2019 (representing $20.7 million in annualized revenues) and an incremental $14.5 million in annualized revenues thereafter.

We estimate the remaining capital cost to provide the space, power, connectivity and other services to the customer contracts which had been booked but not billed as of June 30, 2018 to be approximately $122 million. This estimate generally includes customers with newly contracted space of more than 3,300 square feet. The space, power, connectivity and other services provided to customers that contract for smaller amounts of space is generally provided by existing space which was previously developed.

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Results of Operations

Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017

Changes in revenues and expenses for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 are summarized below (unaudited and in thousands):


	Three Months Ended June 30,
	2018		2017		$ Change		% Change
Revenues:
Rental	$	89,232	$	80,793	$	8,439	10	%
Recoveries from customers		10,444		8,774		1,670	19	%
Cloud and managed services		10,974		16,856		(5,882)	(35)	%
Other		1,627		1,445		182	13	%
Total revenues		112,277		107,868		4,409	4	%

Operating expenses:
Property operating costs		36,558		36,846		(288)	(1)	%
Real estate taxes and insurance		2,903		2,946		(43)	(1)	%
Depreciation and amortization		37,820		34,527		3,293	10	%
General and administrative		21,031		22,562		(1,531)	(7)	%
Transaction, integration and impairment costs		653		161		492	306	%
Restructuring		11,430		—		11,430	*	%
Total operating expenses		110,395		97,042		13,353	14	%

Operating income		1,882		10,826		(8,944)	(83)	%

Other income and expense:
Interest income		25		—		25	*	%
Interest expense		(8,203)		(7,647)		556	(7)	%
Income (loss) before taxes		(6,296)		3,179		(9,475)	(298)	%
Tax benefit (expense) of taxable REIT subsidiaries		(137)		1,429		(1,566)	(110)	%
Net income (loss)		(6,433)		4,608		(11,041)	(240)	%
Net (income) loss attributable to noncontrolling interests		1,002		(568)		1,570	(276)	%
Net income (loss) attributable to QTS Realty Trust, Inc.	$	(5,431)	$	4,040	$	(9,471)	(234)	%
Preferred stock dividends		(2,248)		—		(2,248)	*	%
Net income (loss) attributable to common stockholders	$	(7,679)	$	4,040	$	(11,719)	(290)	%

__________________________

* not applicable for comparison

Revenues. Total revenues for the three months ended June 30, 2018 were $112.3 million compared to $107.9 million for the three months ended June 30, 2017. The increase of $4.4 million, or 4%, was largely attributable to organic growth in our customer base as well as retention of a portion of colocation customers that were previously believed to be at risk of churning due to disruption caused by the strategic growth plan. As the integration with GDT has progressed with minimal disruption, we are seeing less colocation revenue impact than we had originally anticipated, and this has led to additional benefit to the company revenue growth in 2018.

The increase of $2.6 million, or 3%, in combined rental and cloud and managed services revenue was primarily attributable to rents from newly leased space from ongoing expansions in our Irving, Chicago and Atlanta-Metro data

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centers as well as increases in revenue from previously leased space, primarily in our Ashburn data center, or service contracts, net of downgrades at renewal and rental churn. The decrease in cloud and managed service revenue was primarily due to reductions in revenue from existing customers’ churn and downgrades, combined with a reduction in revenue associated with certain cloud and managed services customer contracts that have been transitioned to GDT in connection with the aforementioned strategic growth plan.

As of June 30, 2018, our data centers were approximately 89% occupied based on leasable raised floor of approximately 1,167,000 square feet, with approximately 1,041,000 square feet occupied, with an average annualized rent of $359 per leased raised floor square foot including cloud and managed services revenue. As of June 30, 2017, our data centers were 87% occupied and billing based on leasable raised floor of approximately 1,113,000 square feet, with approximately 968,000 square feet occupied and paying rent, with an average annualized rent of $393 per leased raised floor square foot including cloud and managed services revenue.

Higher recoveries from customers for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 were primarily due to increased utility usage at our Atlanta-Metro, Irving, Atlanta-Suwanee and Piscataway data centers. The increase in other revenue was primarily due to higher straight line rent, offset by a lower level of scrap metal sales.

Property Operating Costs. Property operating costs for the three months ended June 30, 2018 were $36.6 million compared to property operating costs of $36.8 million for the three months ended June 30, 2017, a decrease of $0.3 million, or 1%. The breakdown of our property operating costs is summarized in the table below (unaudited and in thousands):


	Three Months Ended June 30,
	2018		2017		$ Change		% Change
Property operating costs:
Direct payroll	$	5,413	$	5,797	$	(384)	(7)	%
Rent		3,317		3,916		(599)	(15)	%
Repairs and maintenance		3,830		3,623		207	6	%
Utilities		13,492		11,495		1,997	17	%
Management fee allocation		5,298		5,258		40	1	%
Other		5,208		6,757		(1,549)	(23)	%
Total property operating costs	$	36,558	$	36,846	$	(288)	(1)	%

The decrease in total property operating costs was attributable to aggregate expense reductions of $2.5 million primarily related to our transition from our cloud and managed services offerings associated with our strategic growth plan, with expense reductions primarily in rent expense from exiting certain leased facilities, direct payroll expenses, and other costs such as communications services and bad debt expense. Offsetting these decreases were expense increases aggregating to $2.2 million, primarily related to $2.0 million of increased utilities expense associated with increased power usage related to growth in our Hyperscale offering as well as $0.2 million related to increased repairs and maintenance expense which tends to fluctuate from period to period and increase with the expansion and lease-up of our facilities.

Real Estate Taxes and Insurance. Real estate taxes and insurance remained consistent at $2.9 million for both the three months ended June 30, 2018 and 2017.

Depreciation and Amortization. Depreciation and amortization for the three months ended June 30, 2018 was $37.8 million compared to $34.5 million for the three months ended June 30, 2017. The increase of $3.3 million, or 10%, was due to additional depreciation expense of $2.6 million primarily relating to an increase in assets placed in service at our Irving and Atlanta-Metro data centers as well as higher amortization expense of $0.7 million primarily related to a higher level of leasing commissions.

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General and Administrative Expenses. General and administrative expenses were $21.0 million for the three months ended June 30, 2018 compared to general and administrative expenses of $22.6 million for the three months ended June 30, 2017. The decrease of $1.5 million, or 7%, was primarily attributable to the implementation of the aforementioned strategic growth plan, resulting in a decrease in net payroll expenses, excluding equity-based compensation expense, of $1.0 million, reduced advertising and marketing expenses of $0.4 million, lower travel expenses of $0.3 million, lower professional fees of $0.2 million and lower corporate repairs and maintenance expense of $0.2 million. Offsetting these decreases was higher equity-based compensation expense of $0.3 million and higher outside services expenses primarily related to consulting services of $0.3 million.

Transaction, Integration and Impairment Costs. For the three months ended June 30, 2018, we incurred $0.7 million in transaction, integration and impairment costs compared to $0.2 million for the three months ended June 30, 2017. Both current period and prior period costs were primarily related to the assessment of actual and potential acquisitions. Acquisition-related costs for acquisitions accounted for as a business combination in accordance with ASC 805, Business Combinations , are expensed in the periods in which the costs are incurred and the services are received.

Restructuring Costs. Restructuring costs, which are costs associated with our strategic growth plan, were $11.4 million for the three months ended June 30, 2018, primarily related to employee severance expenses, professional fees, acceleration of equity-based compensation awards and the sale or write-off of certain product-related assets. No such costs were incurred during the three months ended June 30, 2017.

Interest Expense. Interest expense was $8.2 million and $7.6 million for the three months ended June 30, 2018 and 2017, respectively. The increase of $0.6 million, or 7%, was due primarily to an increase in the average debt balance of $179.6 million associated with increased funding required for capital projects, partially offset by the issuance of common and preferred stock and higher capitalized interest during the current period due to the growth in construction projects. The average debt balance, exclusive of debt issuance costs, for the three months ended June 30, 2018 was $1,257.8 million, with a weighted average interest rate, including the effect of amortization of deferred financing costs and interest rate swaps, of 4.52%. This compared to an average debt balance, exclusive of debt issuance costs, of $1,078.2 million for the three months ended June 30, 2017, with a weighted average interest rate, including the effect of amortization of deferred financing costs, of 4.01%. Interest capitalized in connection with our development activities during the three months ended June 30, 2018 and 2017 was $6.0 million and $3.2 million, respectively.

Tax Expense/Benefit of Taxable REIT Subsidiaries. The tax expense of our taxable REIT subsidiaries for the three months ended June 30, 2018 was $0.1 million compared to a $1.4 million tax benefit for the three months ended June 30, 2017. The change from a tax benefit for the three months ended June 30, 2017 to a tax expense for the three months ended June 30, 2018 was primarily attributable to the determination that the forecasted 2018 annual activity will drive the taxable REIT subsidiaries into a net deferred asset position by the end of 2018. As a result, QTS has determined that a federal and state valuation allowance will more-likely-than-not be necessary during the balance of 2018. The impact of an anticipated valuation allowance is reflected in the estimated annual effective tax rate for the three months ended June 30, 2018.

Net Income. A summary of the components of the decrease in net income of $11.0 million for the three months ended June 30, 2018 as compared to the three months ended June 30, 2017 is as follows (unaudited and in millions):


	$ Change
Increase in revenues, net of property operating costs, real estate taxes and insurance	$	4.7
Decrease in general and administrative expense		1.5
Increase in transaction, integration and impairment costs		(0.4)
Increase in interest expense net of interest income		(0.5)
Increase in depreciation and amortization		(3.3)
Increase in tax expense		(1.6)
Increase in restructuring charges		(11.4)
Decrease in net income	$	(11.0)

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Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017

Changes in revenues and expenses for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 are summarized below (unaudited and in thousands):


	Six Months Ended June 30,
	2018		2017		$ Change		% Change
Revenues:
Rental	$	174,945	$	159,910	$	15,035	9	%
Recoveries from customers		21,957		17,135		4,822	28	%
Cloud and managed services		24,155		33,821		(9,666)	(29)	%
Other		4,917		2,966		1,951	66	%
Total revenues		225,974		213,832		12,142	6	%

Operating expenses:
Property operating costs		74,298		72,267		2,031	3	%
Real estate taxes and insurance		5,808		6,093		(285)	(5)	%
Depreciation and amortization		73,733		68,475		5,258	8	%
General and administrative		43,265		44,759		(1,494)	(3)	%
Transaction, integration and impairment costs		1,573		497		1,076	216	%
Restructuring		19,960		—		19,960	*	%
Total operating expenses		218,637		192,091		26,546	14	%

Operating income		7,337		21,741		(14,404)	(66)	%

Other income and expense:
Interest income		26		1		25	2500	%
Interest expense		(16,313)		(14,516)		1,797	(12)	%
Income (loss) before taxes		(8,950)		7,226		(16,176)	(224)	%
Tax benefit of taxable REIT subsidiaries		2,265		2,950		(685)	(23)	%
Net income (loss)		(6,685)		10,176		(16,861)	(166)	%
Net (income) loss attributable to noncontrolling interests		1,031		(1,259)		2,290	(182)	%
Net income (loss) attributable to QTS Realty Trust, Inc.	$	(5,654)	$	8,917	$	(14,571)	(163)	%
Preferred stock dividends		(2,576)		—		(2,576)	*	%
Net income (loss) attributable to common stockholders	$	(8,230)	$	8,917	$	(17,147)	(192)	%

__________________________

* not applicable for comparison

Revenues. Total revenues for the six months ended June 30, 2018 were $226.0 million compared to $213.8 million for the six months ended June 30, 2017. The increase of $12.1 million, or 6%, was largely attributable to organic growth in our customer base and placing additional square footage into service in conjunction with the development and expansion of our Irving, Atlanta-Metro and Chicago data centers as well as retention of a portion of colocation customers that were previously believed to be at risk of churning due to disruption caused by the strategic growth plan. As the integration with GDT has progressed with minimal disruption, we are seeing less colocation revenue impact than we had originally anticipated, and this has led to additional benefit to the company revenue growth in 2018.

The increase of $5.4 million, or 3%, in combined rental and cloud and managed services revenue was primarily attributable to rents from newly leased space from ongoing expansions in our Irving, Chicago and Atlanta-Metro data centers as well as increases in rents from previously leased space, net of downgrades at renewal and rental churn. The

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decrease in cloud and managed service revenue was primarily due to reductions in revenue from existing customers’ churn and downgrades, combined with a reduction in revenue associated with certain cloud and managed services customer contracts that have been transitioned to GDT in connection with the aforementioned strategic growth plan.

Higher recoveries from customers for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 were primarily due to increased utility costs generally related to an increase in utility usage at our Irving, Atlanta-Suwanee, Piscataway and Chicago data centers and an increase in utility rates and usage at the Atlanta-Metro data center. The $2.0 million increase in other revenue for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 was primarily due to higher straight line rent.

Property Operating Costs. Property operating costs for the six months ended June 30, 2018 were $74.3 million compared to property operating costs of $72.3 million for the six months ended June 30, 2017, an increase of $2.0 million, or 3%. The breakdown of our property operating costs is summarized in the table below (unaudited and in thousands):


	Six Months Ended June 30,
	2018		2017		$ Change		% Change
Property operating costs:
Direct payroll	$	11,178	$	11,541	$	(363)	(3)	%
Rent		6,928		7,873		(945)	(12)	%
Repairs and maintenance		7,957		8,107		(150)	(2)	%
Utilities		27,965		22,445		5,520	25	%
Management fee allocation		10,553		10,484		69	1	%
Other		9,717		11,817		(2,100)	(18)	%
Total property operating costs	$	74,298	$	72,267	$	2,031	3	%

The increase in total property operating costs was primarily attributable to increased utilities expense of $5.5 million associated with increased power usage related to growth in our Hyperscale offering as well as increased management fee allocation of $0.1 million. Management fee allocation for our leased facilities acquired in 2015 is based on 10% of cash rental revenues for each facility and reflects an allocation of internal charges to cover back-office and service-related costs associated with the day-to-day operations of our data center facilities, with a corresponding offset to general and administrative expenses. Management fee allocation for our other facilities is based on 4% of cash rental revenues for each facility. Offsetting this increase was expense reductions aggregating to $3.6 million, primarily related to our transition from our cloud and managed services offerings associated with our strategic growth plan, with expense reductions primarily in rent expense from exiting certain leased facilities, direct payroll expenses, repairs and maintenance expense, and other costs such as communications services and bad debt expense.

Real Estate Taxes and Insurance. Real estate taxes and insurance for the six months ended June 30, 2018 were $5.8 million compared to $6.1 million for the six months ended June 30, 2017. The decrease of $0.3 million, or 5%, was primarily attributable to a higher level of capitalized real estate taxes at our Fort Worth facility.

Depreciation and Amortization. Depreciation and amortization for the six months ended June 30, 2018 was $73.7 million compared to $68.5 million for the six months ended June 30, 2017. The increase of $5.3 million, or 8%, was due to additional depreciation expense of $4.4 million primarily relating to increase in assets placed in service at our Irving, Chicago, and Atlanta-Metro data centers as well as higher amortization expense of $0.8 million primarily related to a higher level of leasing commissions.

General and Administrative Expenses. General and administrative expenses were $43.3 million for six months ended June 30, 2018 compared to general and administrative expenses of $44.8 million for the six months ended June 30, 2017, a decrease of $1.5 million, or 3%. The decrease was primarily attributable to the aforementioned strategic growth plan, resulting in a decrease in net payroll expenses, excluding equity-based compensation expense, of $1.1 million, lower professional fees of $0.6 million, reduced advertising and marketing expenses of $0.5 million, lower corporate repairs

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and maintenance expense of $0.3 million and lower corporate rent expense of $0.2 million. Offsetting these decreases was higher equity-based compensation expense of $0.7 million and higher software license expenses of $0.5 million.

Transaction, Integration and Impairment Costs. For the six months ended June 30, 2018, we incurred $1.6 million in transaction, integration and impairment costs compared to $0.5 million for the six months ended June 30, 2017. The current period costs incurred were primarily related to the assessment of actual and potential acquisitions. In the prior period, $0.3 million in costs were attributable to various activities related to the integration of the Piscataway and Fort Worth facilities acquired in 2016, with the remaining $0.2 million primarily related to transaction costs incurred in the examination of actual and potential acquisitions. Acquisition-related costs for acquisitions accounted for as a business combination in accordance with ASC 805, Business Combinations , are expensed in the periods in which the costs are incurred and the services are received.

Restructuring Costs. Restructuring costs, which are costs associated with our strategic growth plan, were $20.0 million for the six months ended June 30, 2018, primarily related to employee severance expenses, professional fees, acceleration of equity-based compensation awards and the sale or write-off of certain product-related assets. No such costs were incurred during the six months ended June 30, 2017.

Interest Expense. Interest expense for the six months ended June 30, 2018 was $16.3 million compared to $14.5 million for the six months ended June 30, 2017. The increase of $1.8 million, or 12%, was due primarily to an increase in the average debt balance of $219.7 million, primarily associated with increased funding required for capital projects, partially offset by the issuance of common and preferred stock and higher capitalized interest during the current period due to the growth in construction projects. The average debt balance, exclusive of debt issuance costs, for the six months ended June 30, 2018 was $1,272.1 million, with a weighted average interest rate, including the effect of amortization of deferred financing costs and interest rate swaps, of 4.35%. This compared to an average debt balance of $1,052.3 million for the six months ended June 30, 2017, with a weighted average interest rate, including the effect of amortization of deferred financing costs, of 3.95%. Interest capitalized in connection with our development activities during the six months ended June 30, 2018 and 2017 was $11.4 million and $6.3 million, respectively.

Tax Benefit of Taxable REIT Subsidiaries. Tax benefit of our taxable REIT subsidiaries for the six months ended June 30, 2018 was $2.3 million compared to $3.0 million for the six months ended June 30, 2017. This change was driven by the expectation that a federal and state valuation allowance will more-likely-than-not be necessary during the balance of 2018. That expectation is reflected in the estimated annual effective tax rate for six months ended June 30, 2018, resulting in a reduced tax benefit being recognized compared to the six months ended June 30, 2017.

Net Income. A summary of the components of the decrease in net income of $16.9 million for the six months ended June 30, 2018 as compared to the six months ended June 30, 2017 is as follows (unaudited and in millions):


	$ Change
Increase in revenues, net of property operating costs, real estate taxes and insurance	$	10.4
Decrease in general and administrative expense		1.5
Decrease in tax benefit		(0.7)
Increase in transaction, integration and other costs		(1.1)
Increase in interest expense net of interest income		(1.8)
Increase in depreciation and amortization		(5.2)
Increase in restructuring charges		(20.0)
Decrease in net income	$	(16.9)

Non-GAAP Financial Measures

We consider the following non-GAAP financial measures to be useful to investors as key supplemental measures of our performance: (1) FFO; (2) Operating FFO; (3) Adjusted Operating FFO; (4) MRR; (5) NOI; (6) EBITDA re ; and (7) Adjusted EBITDA. These non-GAAP financial measures should be considered along with, but not as alternatives to, net income or loss and cash flows from operating activities as a measure of our operating performance. FFO, Operating FFO, Adjusted Operating FFO, MRR, NOI, EBITDA re and Adjusted EBITDA, as calculated by us, may not be

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comparable to FFO, Operating FFO, Adjusted Operating FFO, MRR, NOI, EBITDA re and Adjusted EBITDA as reported by other companies that do not use the same definition or implementation guidelines or interpret the standards differently from us.

We do not, nor do we suggest investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information. We believe the presentation of non-GAAP financial measures provide meaningful supplemental information to both management and investors that is indicative of our operations. We have included a reconciliation of this additional information to the most comparable GAAP measure in the selected financial information below.

FFO, Operating FFO and Adjusted Operating FFO

We consider funds from operations (“FFO”) to be a supplemental measure of our performance which should be considered along with, but not as an alternative to, net income (loss) and cash provided by operating activities as a measure of operating performance. We calculate FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts (“NAREIT”). FFO represents net income (loss) (computed in accordance with GAAP), adjusted to exclude gains (or losses) from sales of property, real estate-related depreciation and amortization and similar adjustments for unconsolidated partnerships and joint ventures. Our management uses FFO as a supplemental performance measure because, in excluding real estate-related depreciation and amortization and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, captures trends in occupancy rates, rental rates and operating costs.

Due to the volatility and nature of certain significant charges and gains recorded in our operating results that management believes are not reflective of our core operating performance, management computes an adjusted measure of FFO, which we refer to as Operating FFO. Operating FFO is a non-GAAP measure that is used as a supplemental operating measure and to provide additional information to users of the financial statements. We generally calculate Operating FFO as FFO excluding certain non-routine charges and gains and losses that management believes are not indicative of the results of our operating real estate portfolio. We believe that Operating FFO provides investors with another financial measure that may facilitate comparisons of operating performance between periods and, to the extent they calculate Operating FFO on a comparable basis, between REITs.

Adjusted Operating Funds From Operations (“Adjusted Operating FFO”) is a non-GAAP measure that is used as a supplemental operating measure and to provide additional information to users of the financial statements. We calculate Adjusted Operating FFO by adding or subtracting from Operating FFO items such as: maintenance capital investment, paid leasing commissions, amortization of deferred financing costs and bond discount, non-real estate depreciation, straight line rent adjustments, deferred taxes and non-cash compensation.

We offer these measures because we recognize that FFO, Operating FFO and Adjusted Operating FFO will be used by investors as a basis to compare our operating performance with that of other REITs. However, because FFO, Operating FFO and Adjusted Operating FFO exclude real estate depreciation and amortization and capture neither the changes in the value of our properties that result from use or market conditions, nor the level of capital expenditures and capitalized leasing commissions necessary to maintain the operating performance of our properties, all of which have real economic effect and could materially impact our financial condition, cash flows and results of operations, the utility of FFO, Operating FFO and Adjusted Operating FFO as measures of our operating performance is limited. Our calculation of FFO may not be comparable to measures calculated by other companies who do not use the NAREIT definition of FFO or do not calculate FFO in accordance with NAREIT guidance. In addition, our calculations of FFO, Operating FFO and Adjusted Operating FFO are not necessarily comparable to FFO, Operating FFO and Adjusted Operating FFO as calculated by other REITs that do not use the same definition or implementation guidelines or interpret the standards differently from us. FFO, Operating FFO and Adjusted Operating FFO are non-GAAP measures and should not be considered a measure of our results of operations or liquidity or as a substitute for, or an alternative to, net income (loss), cash provided by operating activities or any other performance measure determined in accordance with GAAP, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions to our stockholders.

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A reconciliation of net income (loss) to FFO, Operating FFO and Adjusted Operating FFO is presented below (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
FFO
Net income (loss)	$	(6,433)	$	4,608	$	(6,685)	$	10,176
Real estate depreciation and amortization		33,843		30,275		65,900		59,779
FFO		27,410		34,883		59,215		69,955
Preferred stock dividends		(2,248)		—		(2,576)		—
FFO available to common stockholders & OP unit holders		25,162		34,883		56,639		69,955

Restructuring costs		11,430		—		19,960		—
Transaction, integration and impairment costs		653		161		1,573		497
Tax expense (benefit) associated with restructuring, transaction and integration costs		(41)		—		(1,676)		—
Operating FFO available to common stockholders & OP unit holders		37,204		35,044		76,496		70,452

Maintenance Capex		(2,612)		(1,172)		(3,542)		(1,968)
Leasing commissions paid		(7,671)		(4,055)		(13,581)		(8,224)
Amortization of deferred financing costs and bond discount		961		971		1,923		1,951
Non real estate depreciation and amortization		3,976		4,254		7,833		8,697
Straight line rent revenue and expense and other		(1,233)		(637)		(3,751)		(1,764)
Tax expense (benefit) from operating results		178		(1,429)		(589)		(2,950)
Equity-based compensation expense		3,999		3,732		7,480		6,814
Adjusted Operating FFO available to common stockholders & OP unit holders	$	34,802	$	36,708	$	72,269	$	73,008

Monthly Recurring Revenue (MRR) and Recognized MRR

We calculate MRR as monthly contractual revenue under signed leases as of a particular date, which includes revenue from our rental and cloud and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues. MRR does not include the impact from booked-not-billed leases as of a particular date, unless otherwise specifically noted.

Separately, we calculate recognized MRR as the recurring revenue recognized during a given period, which includes revenue from our rental and cloud and managed services activities, but excludes customer recoveries, deferred set-up fees, variable related revenues, non-cash revenues and other one-time revenues.

Management uses MRR and recognized MRR as supplemental performance measures because they provide useful measures of increases in contractual revenue from our customer leases. MRR and recognized MRR should not be viewed by investors as alternatives to actual monthly revenue, as determined in accordance with GAAP. Other companies may not calculate MRR or recognized MRR in the same manner. Accordingly, our MRR and recognized MRR may not be comparable to other companies’ MRR and recognized MRR. MRR and recognized MRR should be considered only as supplements to total revenues as a measure of our performance. MRR and recognized MRR should not be used as measures of our results of operations or liquidity, nor is it indicative of funds available to meet our cash needs, including our ability to make distributions to our stockholders.

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A reconciliation of total GAAP revenues to recognized MRR in the period and MRR at period end is presented below (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Recognized MRR in the period
Total period revenues (GAAP basis)	$	112,277	$	107,868	$	225,974	$	213,832
Less: Total period recoveries		(10,444)		(8,774)		(21,957)		(17,135)
Total period deferred setup fees		(3,203)		(2,436)		(6,096)		(5,052)
Total period straight line rent and other		(4,326)		(3,306)		(8,777)		(6,424)
Recognized MRR in the period	$	94,304	$	93,352	$	189,144	$	185,221

MRR at period end
Total period revenues (GAAP basis)	$	112,277	$	107,868	$	225,974	$	213,832
Less: Total revenues excluding last month		(74,562)		(71,262)		(188,259)		(177,226)
Total revenues for last month of period		37,715		36,606		37,715		36,606
Less: Last month recoveries		(3,597)		(2,872)		(3,597)		(2,872)
Last month deferred setup fees		(1,083)		(822)		(1,083)		(822)
Last month straight line rent and other		(1,884)		(1,221)		(1,884)		(1,221)
MRR at period end *	$	31,151	$	31,691	$	31,151	$	31,691

* Does not include our booked-not-billed MRR balance, which was $4.4 million and $3.3 million as of June 30, 2018 and 2017, respectively.

Net Operating Income (NOI)

We calculate net operating income (“NOI”), as net income (loss) (computed in accordance with GAAP), excluding: interest expense, interest income, tax expense (benefit) of taxable REIT subsidiaries, depreciation and amortization, write off of unamortized deferred financing costs, gain (loss) on extinguishment of debt, transaction, integration and impairment costs, gain (loss) on sale of real estate, restructuring costs and general and administrative expenses. We allocate a management fee charge of 4% of cash revenues for all facilities, with the exception of the leased facilities acquired in 2015 which are allocated a charge of 10% of cash revenues, as a property operating cost and a corresponding reduction to general and administrative expense to cover the day-to-day administrative costs to operate our data centers. The management fee charge is reflected as a reduction to net operating income.

Management uses NOI as a supplemental performance measure because it provides a useful measure of the operating results from our customer leases. In addition, we believe it is useful to investors in evaluating and comparing the operating performance of our properties and to compute the fair value of our properties. Our NOI may not be comparable to other REITs’ NOI as other REITs may not calculate NOI in the same manner. NOI should be considered only as a supplement to net income (loss) as a measure of our performance and should not be used as a measure of our results of operations or liquidity or as an indication of funds available to meet our cash needs, including our ability to make distributions to our stockholders. NOI is a measure of the operating performance of our properties and not of our performance as a whole. NOI is therefore not a substitute for net income (loss) as computed in accordance with GAAP.

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A reconciliation of net income (loss) to NOI is presented below (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Net Operating Income (NOI)
Net income (loss)	$	(6,433)	$	4,608	$	(6,685)	$	10,176
Interest income		(25)		—		(26)		(1)
Interest expense		8,203		7,647		16,313		14,516
Depreciation and amortization		37,819		34,527		73,733		68,475
Tax expense (benefit) of taxable REIT subsidiaries		137		(1,429)		(2,265)		(2,950)
Transaction, integration and impairment costs		653		161		1,573		497
General and administrative expenses		21,032		22,562		43,265		44,759
Restructuring		11,430		—		19,960		—
NOI (1)	$	72,816	$	68,076	$	145,868	$	135,472
Breakdown of NOI by facility:
Atlanta-Metro data center	$	21,522	$	20,704	$	42,639	$	41,215
Atlanta-Suwanee data center		12,267		11,423		24,678		23,381
Richmond data center		7,297		8,389		16,216		16,619
Irving data center		10,870		8,057		20,617		14,497
Dulles data center		4,907		5,406		10,106		10,298
Leased data centers (2)		2,664		3,002		5,774		7,120
Santa Clara data center		2,303		2,705		4,762		5,984
Piscataway data center		3,066		2,279		6,000		4,682
Princeton data center		2,427		2,393		4,839		4,792
Sacramento data center		1,802		1,778		3,670		3,615
Chicago data center		2,460		1,275		4,413		1,922
Fort Worth data center		201		75		424		181
Other facilities (3)		1,030		590		1,730		1,166
NOI (1)	$	72,816	$	68,076	$	145,868	$	135,472

(1)

Includes facility level general and administrative expense allocation charges of 4% of cash revenue for all facilities, with the exception of the leased facilities acquired in 2015, which include general and administrative expense allocation charges of 10% of cash revenue. These allocated charges aggregated to $5.3 million and $5.3 million for the three month periods ended June 30, 2018 and 2017, respectively. These allocated charges aggregated to $10.6 million and $10.5 million for the six month periods ended June 30, 2018 and 2017, respectively.

(2)

Includes 11 facilities. All facilities are leased, including those subject to capital leases.

(3)

Consists of Miami, FL; Lenexa, KS; Overland Park, KS; and Duluth, GA facilities.

Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (EBITDAre) and Adjusted EBITDA

We consider earnings before interest, taxes, depreciation and amortization for real estate (“EBITDA re ”) to be a supplemental measure of our performance which should be considered along with, but not as an alternative to, net income (loss) and cash provided by operating activities as a measure of operating performance. We calculate EBITDA re in accordance with the standards established by the National Association of Real Estate Investment Trusts (“NAREIT”). EBITDA re represents net income (loss) (computed in accordance with GAAP), adjusted to exclude gains (or losses) from sales of depreciated property, income tax expense (or benefit), interest expense, depreciation and amortization, impairments of depreciated property and unconsolidated partnerships and joint ventures, and similar adjustments for unconsolidated partnerships and joint ventures. The Company’s management uses EBITDA re as a supplemental performance measure because it provides a performance measure that, when compared year over year, captures the performance of our operations by removing the impact of capital structure (primarily interest expense) and asset base charges (primarily depreciation and amortization), from our operating results.

Due to the volatility and nature of certain significant charges and gains recorded in our operating results that management believes are not reflective of operating performance, management computes an adjusted measure of

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EBITDA re , which we refer to as Adjusted EBITDA. We generally calculate Adjusted EBITDA excluding certain non-routine charges write off of unamortized deferred financing costs, gains (losses) on extinguishment of debt, transaction, integration and impairment costs, in addition to non-cash recurring costs such as equity-based compensation. We believe that Adjusted EBITDA provides investors with another financial measure that may facilitate comparisons of operating performance between periods and, to the extent other REITs calculate Adjusted EBITDA on a comparable basis, between REITs.

We use EBITDA re and Adjusted EBITDA as supplemental performance measures as they provide useful measures of assessing our operating results. Other companies may not calculate EBITDA re or Adjusted EBITDA in the same manner. Accordingly, our EBITDA re and Adjusted EBITDA may not be comparable to others. EBITDA re and Adjusted EBITDA should be considered only as supplements to net income (loss) as measures of our performance and should not be used as substitutes for net income (loss), as measures of our results of operations or liquidity or as an indications of funds available to meet our cash needs, including our ability to make distributions to our stockholders.

A reconciliation of net income (loss) to EBITDA re and Adjusted EBITDA is presented below (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
EBITDA re and Adjusted EBITDA
Net income (loss)	$	(6,433)	$	4,608	$	(6,685)	$	10,176
Interest income		(25)		—		(26)		(1)
Interest expense		8,203		7,647		16,313		14,516
Tax expense (benefit) of taxable REIT subsidiaries		137		(1,429)		(2,265)		(2,950)
Depreciation and amortization		37,819		34,527		73,733		68,475
Impairment write-downs of depreciated property		3,122		—		7,139		—
EBITDA re		42,823		45,353		88,209		90,216

Equity-based compensation expense		3,999		3,732		7,480		6,814
Restructuring costs		8,308		—		12,821		—
Transaction, integration and restructuring costs		653		161		1,573		497
Adjusted EBITDA	$	55,783	$	49,246	$	110,083	$	97,527

Liquidity and Capital Resources

Short-Term Liquidity

Our short-term liquidity needs include funding capital expenditures for the development of data center space (a significant portion of which is discretionary), meeting debt service and debt maturity obligations, funding payments for capital lease and lease financing obligations, funding distributions to our stockholders and unit holders, utility costs, site maintenance costs, real estate and personal property taxes, insurance, rental expenses, general and administrative expenses and certain recurring and non-recurring capital expenditures.

In addition to the $273.5 million of capital expenditures incurred in the six months ended June 30, 2018, we expect that we will incur approximately $150 million to $200 million in additional capital expenditures through December 31, 2018, excluding acquisitions, in connection with the development of our data center facilities. We expect to spend approximately $110 million to $160 million of capital expenditures with vendors on development, and the remainder on other capital expenditures and capitalized overhead costs (including capitalized interest, commissions, payroll and other similar costs), personal property and other less material capital projects. We expect to fund these costs using operating cash flows, draws on our credit facility, additional equity issuances through our ATM program or other capital markets activity. A significant portion of these expenditures are discretionary in nature and we may ultimately determine not to make these expenditures or the timing of such expenditures may vary.

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We expect to meet our short-term liquidity needs through operating cash flow, cash and cash equivalents and borrowings under our credit facility.

Our cash paid for capital expenditures for the six months ended June 30, 2018 and 2017 are summarized in the table below (unaudited and in thousands):


	Six Months Ended June 30,
	2018		2017
Development	$	201,172	$	100,107
Acquisitions		24,626		5,019
Maintenance capital expenditures		3,542		1,968
Other capital expenditures (1)		44,138		37,743
Total capital expenditures	$	273,478	$	144,837

(1)

Represents capital expenditures for capitalized interest, commissions, personal property, overhead costs and corporate fixed assets. Corporate fixed assets primarily relate to construction of corporate offices, leasehold improvements and product-related assets.

Long-Term Liquidity

Our long-term liquidity needs primarily consist of funds for property acquisitions, scheduled debt maturities, payment of principal at maturity of our Senior Notes, funding payments for capital lease and lease financing obligations, dividend payments on our Series A Preferred Stock and Series B Preferred Stock and recurring and non-recurring capital expenditures. We may also pursue new developments and additional redevelopment of our data centers and future redevelopment of other space in our portfolio. We may also pursue development on land which QTS currently owns that is available at our data center properties in Atlanta-Metro, Atlanta-Suwanee, Richmond, Irving, Fort Worth, Princeton, Chicago, Ashburn, Phoenix, Hillsboro and Manassas. The development and/or redevelopment of this space, including timing, is at our discretion and will depend on a number of factors, including availability of capital and our estimate of the demand for data center space in the applicable market. We expect to meet our long-term liquidity needs with net cash provided by operations, incurrence of additional long-term indebtedness, borrowings under our credit facility and issuance of additional equity or debt securities, subject to prevailing market conditions, as discussed below.

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 our Class A common stock, preferred stock, depositary shares representing preferred stock, warrants and rights to purchase our common stock or any combination thereof, subject to the ability of QTS to effect offerings on satisfactory terms based on prevailing conditions. The shelf registration statement is intended to allow us to have the flexibility to raise such funds in one or more offerings should we perceive market conditions to be favorable.

In March 2017, we established an “at-the-market” equity offering program (the “ATM Program”) pursuant to which we may issue, from time to time, up to $300 million of our Class A common stock. We issued no shares under the ATM Program during the three and six months ended June 30, 2018.

On March 15, 2018, we issued 4,280,000 shares of 7.125% Series A Cumulative Redeemable Perpetual Preferred Stock with a liquidation preference of $25.00 per share, which included 280,000 shares of the underwriters’ partial exercise of their option to purchase additional shares. We used the net proceeds of approximately $103.2 million to repay amounts outstanding under our unsecured revolving credit facility.

On June 20, 2018, we issued 3,162,500 shares of 6.50% Series B Cumulative Convertible Perpetual Preferred Stock with a liquidation preference of $100.00 per share, which included 412,500 shares the underwriters purchased pursuant to the exercise of their overallotment option in full. We used the net proceeds of approximately $304 million to repay amounts outstanding under our unsecured revolving credit facility.

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Cash

As of June 30, 2018, we had $52.5 million of unrestricted cash and cash equivalents.

The following tables present quarterly cash dividends and distributions paid to QTS’ stockholders and the Operating Partnership’s unit holders for the six months ended June 30, 2018 and 2017:


Six Months Ended June 30, 2018
				Aggregate
		Per Share and		Dividend/Distribution
Record Date	Payment Date	Per Unit Rate		Amount (in millions)
Common Stock
March 22, 2018	April 5, 2018	$	0.41	$	23.7
December 5, 2017	January 5, 2018	$	0.39		22.2
				$	45.9

Series A Preferred Stock
April 5, 2018	April 16, 2018	$	0.15	$	0.6


Six Months Ended June 30, 2017
				Aggregate
		Per Common Share and		Dividend/Distribution
Record Date	Payment Date	Per Unit Rate		Amount (in millions)
March 16, 2017	April 5, 2017	$	0.39	$	21.4
December 16, 2016	January 5, 2017	$	0.36		19.7
				$	41.1

On July 6, 2018 we paid our regular quarterly cash dividend of $0.41 per common share and per unit in the Operating Partnership to stockholders and unit holders of record as of the close of business on June 20, 2018.

Additionally, on July 16, 2018, we paid a quarterly cash dividend of approximately $0.45 per share on our Series A Preferred Stock.

Indebtedness

As of June 30, 2018, we had approximately $1,106.2 million of indebtedness, including capital leases and lease financing obligations, and excluding debt issuance costs.

Unsecured Credit Facility. In December 2017, we amended our unsecured credit facility, increasing the total capacity to $1.52 billion and extending the term. The unsecured credit facility includes a $350 million term loan which matures on December 17, 2022, a $350 million term loan which matures on April 27, 2023, and a $820 million revolving credit facility which matures on December 17, 2021, with a one year extension option. Amounts outstanding under the amended unsecured credit facility bear interest at a variable rate equal to, at our election, LIBOR or a base rate, plus a spread that will vary depending upon our leverage ratio. For revolving credit loans, the spread ranges from 1.55% to 2.15% for LIBOR loans and 0.55% to 1.15% for base rate loans. For term loans, the spread ranges from 1.50% to 2.10% for LIBOR loans and 0.50% to 1.10% for base rate loans. The unsecured credit facility also includes a $400 million accordion feature.

Under the unsecured credit facility, the capacity may be increased from the current capacity of $1.52 billion to $1.92 billion subject to certain conditions set forth in the credit agreement, including the consent of the administrative agent and obtaining necessary commitments. We are also required to pay a commitment fee to the lenders assessed on the unused portion of the unsecured revolving credit facility. At our election, we can prepay amounts outstanding under the unsecured credit facility, in whole or in part, without penalty or premium.

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Our ability to borrow under the amended unsecured credit facility is subject to ongoing compliance with a number of customary affirmative and negative covenants, including limitations on liens, mergers, consolidations, investments, distributions, asset sales and affiliate transactions, as well as the following financial covenants: (i) the Operating Partnership's and its subsidiaries' consolidated total unsecured debt plus any capitalized lease obligations with respect to the unencumbered asset pool properties may not exceed 60% of the unencumbered asset pool value (or 65% of the unencumbered asset pool value for up to two consecutive fiscal quarters immediately following a material acquisition for which the Operating Partnership has provided written notice to the Agent; provided the two fiscal quarter period includes the quarter in which the material acquisition was consummated); (ii) the unencumbered asset pool debt yield cannot be less than 14% (or 12.5% for the two consecutive fiscal quarters immediately following a material acquisition for which the Operating Partnership has provided written notice to the Agent; provided the two fiscal quarter period includes the quarter in which the material acquisition was consummated); (iii) QTS must maintain a minimum fixed charge coverage ratio (defined as the ratio of consolidated EBITDA, subject to certain adjustments, to consolidated fixed charges) for the prior two most recently-ended calendar quarters of 1.70 to 1.00; (iv) QTS must maintain a maximum debt to gross asset value (as defined in the amended and restated agreement) ratio of 60% (or 65% for the two consecutive fiscal quarters immediately following a material acquisition for which the Operating Partnership has provided written notice to the Agent; provided the two fiscal quarter period includes the quarter in which the material acquisition was consummated); (v) QTS must maintain tangible net worth (as defined in the amended and restated agreement) cannot be less than the sum of $1,209,000,000 plus 75% of the net proceeds from any equity offerings after June 30, 2017; and (vi) a maximum distribution payout ratio of the greater of (i) 95% of our Funds from Operations (as defined in the amended and restated agreement) and (ii) the amount required for the Company to qualify as a REIT under the Code.

The availability under the revolving credit facility is the lesser of (i) $820 million, (ii) 60% of the unencumbered asset pool capitalized value (or 65% of the unencumbered asset pool capitalized value for the two consecutive fiscal quarters immediately following a material acquisition for which the Operating Partnership has provided written notice to the Agent; provided the two fiscal quarter period includes the quarter in which the material acquisition was consummated) and (iii) the amount resulting in an unencumbered asset pool debt yield of 14% (or 12.5% for the two consecutive fiscal quarters immediately following a material acquisition for which the Operating Partnership has provided written notice to the Agent; provided the two fiscal quarter period includes the quarter in which the material acquisition was consummated). In the case of clauses (ii) and (iii) of the preceding sentence, the amount available under the revolving credit facility is adjusted to take into account any other unsecured debt and certain capitalized leases. A material acquisition is an acquisition of properties or assets with a gross purchase price equal to or in excess of 15% of the Operating Partnership's gross asset value (as defined in the amended and restated agreement) as of the end of the most recently ended quarter for which financial statements are publicly available. The availability of funds under our unsecured credit facility depends on compliance with our covenants.

As of June 30, 2018, we had outstanding $700 million of indebtedness under the unsecured credit facility, all of which was outstanding under the term loans, exclusive of net debt issuance costs of $5.2 million. There were no outstanding borrowings on our unsecured revolving credit facility as of June 30, 2018. In connection with the unsecured credit facility, as of June 30, 2018, we had letters of credit outstanding aggregating to $4.1 million. As of June 30, 2018, the weighted average interest rate for amounts outstanding under our unsecured credit facility, including the effects of interest rate swaps, was 3.50%.

On April 5, 2017, we entered into forward interest rate swap agreements with an aggregate notional amount of $400 million. The forward swap agreements effectively fix the interest rate on $400 million of term loan borrowings, $200 million of swaps allocated to each term loan, from January 2, 2018 through December 17, 2021 and April 27, 2022, respectively. The weighted average effective fixed interest rate on the $400 million notional amount of term loan financing approximates 3.5%, which commenced on January 2, 2018 and assumes the current LIBOR spread of 1.5%.

4.750% Senior Notes due 2025. On November 8, 2017, the Operating Partnership and QTS Finance Corporation, a subsidiary of the Operating Partnership formed solely for the purpose of facilitating the offering of the 5.875% Senior Notes due 2022 (collectively, the “Issuers”) issued $400 million aggregate principal amount of 4.75% Senior Notes due November 15, 2025 (the “Senior Notes”) in a private offering. The Senior Notes have an interest rate of 4.750% per annum and were issued at a price equal to 100% of their face value. The net proceeds from the offering were used to fund the redemption of, and satisfy and discharge the indenture pursuant to which the Issuers issued, the 5.875% Senior

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Notes due 2022 and to repay a portion of the amount outstanding under the Company’s unsecured revolving credit facility.

The Senior Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all of the Operating Partnership’s existing subsidiaries (other than foreign subsidiaries and receivables entities) and future subsidiaries that guarantee any indebtedness of QTS, the Issuers or any other subsidiary guarantor. QTS Realty Trust, Inc. does not guarantee the Senior Notes and will not be required to guarantee the Senior Notes expect under certain circumstances. The offering was conducted pursuant to Rule 144A of the Securities Act of 1933, as amended, and the Senior Notes were issued pursuant to an indenture, dated as of November 8, 2017, among QTS, the Issuers, the guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee (the “Indenture”). As of June 30, 2018, the outstanding net debt issuance costs associated with the Senior Notes were $5.6 million.

The Indenture contains affirmative and negative covenants that, among other things, limit or restrict the Operating Partnership’s ability and the ability of certain of its subsidiaries (the “Restricted Subsidiaries”) to: incur additional indebtedness; pay dividends; make certain investments or other restricted payments; enter into transactions with affiliates; enter into agreements limiting the ability of the Operating Partnership’s restricted subsidiaries to pay dividends; engage in sales of assets; and engage in mergers, consolidations or sales of substantially all of their assets.

However, certain of these covenants will be suspended if and for so long as the Senior Notes are rated investment grade by specified debt rating services and there are no default under the Indenture. The Operating Partnership and its Restricted Subsidiaries also are required to maintain total unencumbered assets (as defined in the Indenture) of at least 150% of their unsecured debt on a consolidated basis.

The Senior Notes may be redeemed by the Issuers, in whole or in part, at any time prior to November 15, 2020 at a redemption price equal to (i) 100% of the principal amount, plus (ii) accrued and unpaid interest to the redemption date, and (iii) a make-whole premium. On or after November 15, 2020, the Issuers may redeem the Senior Notes, in whole or in part, at a redemption price equal to (i) 103.563% of the principal amount from November 15, 2020 to November 14, 2021, (ii) 102.375% of the principal amount from November 15, 2021 to November 14, 2022, (iii) 101.188% of the principal amount from November 15, 2022 to November 14, 2023 and (iv) 100.000% of the principal amount of the Senior Notes from November 15, 2023 and thereafter, in each case plus accrued and unpaid interest to, but excluding, the redemption date. In addition, at any time prior to November 15, 2020, the Issuers may, subject to certain conditions, redeem up to 40% of the aggregate principal amount of the Senior Notes at 104.750% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the redemption date, with the net cash proceeds of certain equity offerings consummated by the Company or the Operating Partnership. Also, upon the occurrence of a change of control of us or the Operating Partnership, holders of the Senior Notes may require the Issuers to repurchase all or a portion of the Senior Notes at a price equal to 101% of the principal amount of the Senior Notes to be repurchased plus accrued and unpaid interest to the repurchase date.

Lenexa Mortgage. On March 8, 2017, we entered into a $1.9 million mortgage loan secured by our Lenexa facility. This mortgage has a fixed rate of 4.1%, with periodic principal payments due monthly and a balloon payment of $1.6 million in May 2022. As of June 30, 2018, the outstanding balance under the Lenexa mortgage was $1.8 million.

Contingencies

We are subject to various routine legal proceedings and other matters in the ordinary course of business. While resolution of these matters cannot be predicted with certainty, management believes, based upon information currently available, that the final outcome of these proceedings will not have a material adverse effect on our financial condition, liquidity or results of operations.

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Contractual Obligations

The following table summarizes our contractual obligations as of June 30, 2018, including the future non-cancellable minimum rental payments required under operating leases and the maturities and scheduled principal repayments of indebtedness and other agreements (unaudited and in thousands):


Obligations	2018		2019		2020		2021		2022		Thereafter		Total
Operating Leases	$	7,837	$	12,211	$	11,078	$	11,024	$	10,185	$	67,502	$	119,837
Capital Leases and Lease Financing Obligations		3,301		956		117		9		—		—		4,383
Future Principal Payments of Indebtedness (1)		28		68		71		74		350,077		751,516		1,101,834
Total (2)	$	11,166	$	13,235	$	11,266	$	11,107	$	360,262	$	819,018	$	1,226,054

(1)

Does not include the related debt issuance costs on Senior Notes nor the related debt issuance costs on the term loans reflected at June 30, 2018. Also does not include letters of credit outstanding aggregating to $4.1 million as of June 30, 2018 under our unsecured credit facility.

(2)

Total obligations does not include contractual interest that we are required to pay on our long-term debt obligations. Contractual interest payments on our credit facility, Senior Notes, capital leases, lease financing obligations and other financing arrangements through the scheduled maturity date, assuming no prepayment of debt and inclusive of the effects of interest rate swaps, are shown below. Interest payments were estimated based on the principal amount of debt outstanding and the applicable interest rate as of June 30, 2018 (unaudited and in thousands):


2018		2019		2020		2021		2022		Thereafter		Total
$	22,828	$	45,618	$	45,609	$	45,527	$	42,977	$	58,586	$	261,145

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

Cash Flows

Cash flow for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 are summarized below (unaudited and in thousands):


	Six Months Ended
	June 30,
	2018		2017
Cash flow provided by (used for):
Operating activities	$	91,526	$	77,384
Investing activities		(271,982)		(144,837)
Financing activities		224,681		100,477

Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017

Cash flow provided by operating activities was $91.5 million for the six months ended June 30, 2018 compared to $77.4 million for the six months ended June 30, 2017. The increase in cash flow provided by operating activities of $14.1 million is primarily attributed to cash flow associated with net changes in working capital of $15.1 million primarily related to changes in accounts payable and accrued liabilities. This increase was partially offset by a reduction in cash operating income of $1.0 million which was primarily related to cash restructuring charges associated with our strategic growth plan.

Cash flow used for investing activities increased by $127.1 million to $272.0 million for the six months ended June 30, 2018, compared to $144.8 million for the six months ended June 30, 2017. The increase was due primarily to an increase

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in cash paid for development capital expenditures of $109.0 million as well as an increase in cash paid for acquisitions of $19.6 million attributable to the cash paid for the acquisition of land in Manassas, Virginia.

Cash flow provided by financing activities was $224.7 million for the six months ended June 30, 2018, compared to $100.5 million for the six months ended June 30, 2017. The increase was primarily due to an increase in net equity proceeds of $369.4 million, attributable to $408.4 million of aggregate proceeds received in the current year from our Series A Preferred Stock offering and Series B Preferred Stock offering compared to $39.0 million of equity proceeds received in the prior year from common stock issuances under our ATM. Offsetting this increase was lower net proceeds of $240.0 million under our unsecured credit facility, primarily a result of the payoff of the revolver using proceeds from the Series A Preferred Stock offering and Series B Preferred Stock offering, as well as higher payments of cash dividends to common and preferred stockholders of $5.3 million.

Critical Accounting Policies

The Company applies those accounting policies that management believes best reflect the underlying business and economic events, consistent with accounting principles generally accepted in the United States. Inherent in such policies are certain key assumptions and estimates made by management. Management periodically updates its estimates used in the preparation of the consolidated financial statements based on its latest assessment of the current and projected business and general economic environment.

Effective January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers , which resulted in changes to the Company’s critical accounting policy relating to revenue recognition. Refer to Note 2 – ‘Summary of Significant Accounting Policies’ for additional information regarding the new and updated policies as a result of the adoption of ASC Topic 606.

Additional information regarding the Company’s Critical Accounting Policies and Estimates is included in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Inflation

Substantially all of our long-term leases - leases with a term greater than three years - contain rent increases and reimbursement for certain operating costs. As a result, we believe that we are largely insulated from the effects of inflation over periods greater than three years. Leases with terms of three years or less will be replaced or renegotiated within three years and should adjust to reflect changed conditions, also mitigating the effects of inflation. Moreover, to the extent that there are material increases in utility costs, we generally reserve the right to renegotiate the rate. However, any increases in the costs of redevelopment of our properties will generally result in a higher cost of the property, which will result in increased cash requirements to redevelop our properties and increased depreciation and amortization expense in future periods, and, in some circumstances, we may not be able to directly pass along the increase in these redevelopment costs to our customers in the form of higher rental rates.

Distribution Policy

To satisfy the requirements to qualify as a REIT, and to avoid paying tax on our income, QTS intends to continue to make regular quarterly distributions of all, or substantially all, of its REIT taxable income (excluding net capital gains) to its stockholders.

All distributions will be made at the discretion of our board of directors and will depend on our historical and projected results of operations, liquidity and financial condition, QTS’ REIT qualification, our debt service requirements, operating expenses and capital expenditures, prohibitions and other restrictions under financing arrangements and applicable law and other factors as our board of directors may deem relevant from time to time. We anticipate that our estimated cash available for distribution will exceed the annual distribution requirements applicable to REITs and the amount necessary to avoid the payment of tax on undistributed income. However, under some circumstances, we may be required to make distributions in excess of cash available for distribution in order to meet these distribution requirements and we may need

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to borrow funds to make certain distributions. If we borrow to fund distributions, our future interest costs would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have been.

The Operating Partnership also includes certain partners that are subject to a taxable income allocation, however, not entitled to receive recurring distributions. The partnership agreement does stipulate however, to the extent that taxable income is allocated to these partners that the partnership will make a distribution to these partners equal to the lesser of the actual per unit distributions made to Class A partners or an estimated amount to cover federal, state and local taxes on the allocated taxable income. No distributions related to allocated taxable income were made to these partners for the six months ended June 30, 2018 and 2017.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. The primary market risk to which we believe we are exposed is interest rate risk. Many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control, contribute to interest rate risk.

As of June 30, 2018, after consideration of interest rate swaps, we had outstanding $300 million of consolidated indebtedness that bore interest at variable rates.

We monitor our market risk exposures using a sensitivity analysis. Our sensitivity analysis estimates the exposure to market risk sensitive instruments assuming a hypothetical 1% change in year-end interest rates. A 1% increase in the LIBOR rate would increase the interest expense on the $300 million of variable indebtedness outstanding as of June 30, 2018 by approximately $3.0 million annually. Conversely, a decrease in the LIBOR rate to 1.09% would decrease the interest expense on this $300 million of variable indebtedness outstanding by approximately $3.0 million annually based on the one month LIBOR rate of approximately 2.09% as of June 30, 2018.

On April 5, 2017, the Company entered into forward interest rate swap agreements with an aggregate notional amount of $400 million. The forward swap agreements effectively fix the interest rate on $400 million of term loan borrowings, $200 million of swaps allocated to each term loan, from January 2, 2018 through December 17, 2021 and April 27, 2022, respectively. The Company's weighted average interest rate on floating rate debt as of June 30, 2018 was approximately 3.48%. The weighted average effective fixed interest rate on the $400 million notional amount of term loan financing approximates 3.5%, which commenced on January 2, 2018 and assumes the current LIBOR spread of 1.5%.

The above analyses do not consider the effect of any change in overall economic activity that could impact interest rates or expected changes associated with future indebtedness. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.

ITEM 4. Controls and Procedure s

QTS Realty Trust, Inc.

Disclosure Controls and Procedures

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and Chief Financial Officer) to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Control over Financial Reporting

There were no changes in QTS’ internal control over financial reporting during the period ended June 30, 2018, that have materially affected, or are reasonably likely to materially affect, QTS’ internal control over financial reporting.

QualityTech, LP

Disclosure Controls and Procedures

Based on an evaluation of disclosure controls and procedures for the period ended June 30, 2018, conducted by the Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer concluded that the Operating Partnership’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Operating Partnership in reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Company’s management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Control over Financial Reporting

There were no changes in the Operating Partnership’s internal control over financial reporting during the period ended June 30, 2018, that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

In the ordinary course of our business, we are subject to claims and administrative proceedings, none of which we believe are material or would be expected to have, individually or in the aggregate, a material adverse effect on us.

ITEM 1A. Risk Factor s

There have been no material changes to the risk factors disclosed in our Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2018, which are accessible on the SEC’s website at www.sec.gov.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

QTS did not sell any securities during the six months ended June 30, 2018 that were not registered under the Securities Act of 1933, as amended (the “Securities Act”).

QTS from time to time issues shares of Class A common stock pursuant to the QTS Realty Trust, Inc. 2013 Equity Incentive Plan (the “2013 Equity Incentive Plan”), upon exercise of stock options issued under the 2013 Equity Incentive Plan, upon redemption of Class A units of limited partnership of the Operating Partnership (either through Class A units previously held or those received from conversion of Class O units from the QualityTech, LP 2010 Equity Incentive Plan) and under the ATM Program. Pursuant to the partnership agreement of the Operating Partnership, each time QTS issues shares of common stock, the Operating Partnership issues to QTS, its general partner, an equal number of Class A units. The units issued to QTS are not registered under the Securities Act in reliance on Section 4(a)(2) of the Securities Act due to the fact that Class A units were issued only to QTS and therefore, did not involve a public offering. A minimal amount of units were converted to common stock during the six months ended June 30, 2018. Additionally, the Operating Partnership issued approximately 0.5 million Class A units related to the conversion of Class O units with a value aggregating approximately $16.1 million based on the respective dates of the redemption. Approximately 180,000 of the aforementioned Class A units with value aggregating to $2.9 million based on the respective date of redemption were converted to Class A common stock. There were also 50,000 Class A units that were previously held as Class A units were also converted to Class A common stock with a value aggregating to approximately $1.6 million based on the date of redemption. In addition, during the six months ended June 30, 2018, the Operating Partnership issued 4,280,000 Series A Preferred Units to the Company and 3,162,500 Series B Preferred Units to the Company, which have economic terms that are substantially similar to the Company’s Series A Preferred Stock and Series B Preferred Stock. These units issued to QTS are not registered under the Securities Act in reliance on Section 4(a)(2) of the Securities Act due to the fact that Series A Preferred Units and Series B Preferred Units were issued only to QTS and therefore, did not involve a public offering. The Series A Preferred Units and Series B Preferred Units were issued in exchange for the Company’s contribution of the net offering proceeds of the offering of the Series A Preferred Stock to the Operating Partnership and Series B Preferred Stock to the Operating Partnership.

Repurchases of Equity Securities

During the three months ended June 30, 2018, certain of our employees surrendered Class A common stock owned by them to satisfy their federal and state tax obligations in connection with the vesting of restricted common stock under the 2013 Equity Incentive Plan.

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The following table summarizes all of these repurchases during the three months ended June 30, 2018:


					Total number of
					shares purchased as	Maximum number of
	Total number		Average price		part of publicly	shares that may yet be
	of shares		paid per		announced plans or	purchased under the
Period	purchased		share		programs	plans or programs
April 1, 2018 through April 30, 2018	2,174	(1)	$	35.94	N/A	N/A
May 1, 2018 through May 31, 2018	—			N/A	N/A	N/A
June 1, 2018 through June 30, 2018	7,289	(1)	$	39.50	N/A	N/A
Total	9,463	(1)	$	38.68

(1)

The number of shares purchased represents shares of Class A common stock surrendered by certain of our employees to satisfy their federal and state tax obligations associated with the vesting of restricted common stock. With respect to these shares, the price paid per share is based on the closing price of our Class A common stock as of the date of the determination of the federal income tax .

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

None.

ITEM 6. Exhibit s


Exhibit Number		Exhibit Description

2.1		Stock Purchase Agreement dated May 6, 2016 by and among Quality Technology Services Holding, LLC, Carpathia Holdings, LLC and Carpathia Acquisition, Inc., incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC on May 12, 2015 (Commission File No. 002-36109)

2.2		First Amendment to Stock Purchase Agreement dated June 12, 2015, incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC on June 19, 2015 (Commission File No. 001-36109)

3.1		Articles of Amendment and Restatement of QTS Realty Trust, Inc., incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on October 17, 2013 (Commission File No. 001-36109)

3.2		Second Amended and Restated Bylaws of QTS Realty Trust, Inc., incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q filed with the SEC on May 8, 2017 (Commission File No. 001-36109)

3.3		Articles Supplementary designating QTS Realty Trust, Inc.’s 7.125% Series A Cumulative Redeemable Perpetual Preferred Stock, liquidation preference $25.00 per share, $0.01 par value per share, incorporated by reference to Exhibit 3.2 to the Company’s Form 8-A filed on March 15, 2018 (Commission File No. 001-36109)

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3.4		Articles Supplementary designating QTS Realty Trust, Inc.’s 6.50% Series B Cumulative Convertible Perpetual Preferred Stock, liquidation preference $100.00 per share, $0.01 par value per share, incorporated by reference to Exhibit 3.3 to the Company’s Form 8-A filed on June 25, 2018 (Commission File No. 001-36109)

4.1		Form of Specimen Class A Common Stock Certificate, incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-11/A filed with the SEC on September 26, 2013 (Commission File No. 333-190675)

4.2		Indenture, dated November 8, 2017, by and among QualityTech, LP, QTS Finance Corporation, QTS Realty Trust, Inc., certain subsidiaries of QualityTech, LP and Deutsche Bank Trust Company Americas, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on November 8, 2017 (Commission File No. 001-36109)

4.3		Form of 4.750% Senior Notes due 2025 (included as Exhibit A to Exhibit 4.2 hereof)

4.4		Supplemental Indenture, dated as of December 22, 2017, by and among QualityTech, LP, QTS Finance Corporation, QTS Realty Trust, Inc., the entities identified therein as Guaranteeing Subsidiaries, the entities identified therein as Subsidiary Guarantors, and Deutsche Bank Trust Company Americas, to the Indenture dated, as of November 8, 2017, by and among QualityTech, LP, and QTS Finance Corporation, as issuers, QTS Realty Trust, Inc., each of the subsidiary guarantors party thereto, and Deutsche Bank Trust Company Americas, as trustee, incorporated by reference to Exhibit 4.4 to the Annual Report on Form 10-K filed with the SEC on February 28, 2018 (Commission File No. 001-36109)

4.5		Form of stock certificate evidencing the 7.125% Series A Cumulative Redeemable Perpetual Preferred Stock, liquidation preference $25.00 per share, $0.01 par value per share, incorporated by reference to Exhibit 4.1 to the Company’s Form 8-A filed on March 15, 2018 (Commission File No. 001-36109)

4.6		Form of stock certificate evidencing the 6.50% Series B Cumulative Convertible Perpetual Preferred Stock, liquidation preference $100.00 per share, $0.01 par value per share, incorporated by reference to Exhibit 4.1 to the Company’s Form 8-A filed on June 25, 2018 (Commission File No. 001-36109)

10.1		Amendment No. 2 to Fifth Amended and Restated Agreement of Limited Partnership of QualityTech, LP, dated as of June 25 2018, by QTS Realty Trust, Inc., incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on June 27, 2018 (Commission File No. 001-36109)

10.2		Transaction Agreement, dated as of April 24, 2018, by and between QTS Technology Services Holding, LLC, QualityTech, LP, and General Datatech, L.P.

10.3		Channel Agreement, dated as of April 24, 2018, by and between QTS Technology Services Holding, LLC and General Datatech, L.P.

10.4		Transition Services Agreement, dated as of April 24, 2018, by and between QTS Technology Services Holding, LLC, QualityTech, LP, and General Datatech, L.P.

10.5		Second Amendment to Employment Agreement, dated June 5, 2018, by and among QTS Realty Trust, Inc., QualityTech, LP, Quality Technology Services, LLC, and William H. Schafer

10.6		Transition Agreement & Release of All Claims, dated as of May 3, 2018, by and between QTS Realty Trust, Inc., QualityTech, LP, Quality Technology Services, LLC and all related companies, and all related companies and Daniel T. Bennewitz

10.7		Third Amendment to Employment Agreement, dated June 29, 2018, by and among QTS Realty Trust, Inc., QualityTech, LP, Quality Technology Services, LLC, and William H. Schafer

Table of Contents

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (QTS Realty Trust, Inc.)

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (QTS Realty Trust, Inc.)

31.3		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (QualityTech, LP)

31.4		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (QualityTech, LP)

32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (QTS Realty Trust, Inc.)

32.2		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (QualityTech, LP)

101		The following materials from QTS Realty Trust, Inc.’s and QualityTech, LP’s Quarterly Report on Form 10-Q for the period ended June 30, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of operations and comprehensive income (loss), (iii) condensed consolidated statements of equity and partners’ capital, (iv) condensed consolidated statements of cash flow, and (v) the notes to the condensed consolidated financial statements

Table of Contents

SIGNATURE S

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	QTS Realty Trust, Inc.

DATE: August 3, 2018	/s/ Chad L. Williams
	Chad L. Williams
	Chairman and Chief Executive Officer


DATE: August 3, 2018	/s/ William H. Schafer
	William H. Schafer
	Executive Vice President – Finance and Accounting
	(Principal Accounting Officer)


DATE: August 3, 2018	/s/ Jeffrey H. Berson
	Jeffrey H. Berson
	Chief Financial Officer
	(Principal Financial Officer)

	QualityTech, LP

	By: QTS Realty Trust, Inc.,
	its general partner


DATE: August 3, 2018	/s/ Chad L. Williams
	Chad L. Williams
	Chairman and Chief Executive Officer


DATE: August 3, 2018	/s/ William H. Schafer
	William H. Schafer
	Executive Vice President – Finance and Accounting
	(Principal Accounting Officer)


DATE: August 3, 2018	/s/ Jeffrey H. Berson
	Jeffrey H. Berson
	Chief Financial Officer
	(Principal Financial Officer)

Exhibit 10.2

EXECUTION VERSION

TRANSACTION AGREEMENT

dated as of April 24, 2018

by and among

Quality Technology Services Holding, LLC,

QualityTech, LP,

and

General Datatech, L.P.

TABLE OF CONTENTS


		Page

RECITALS		1

ARTICLE I DEFINITIONS		1

Section 1.01.	Certain Defined Terms	1

ARTICLE II PURCHASE AND SALE; FRAMEWORK FOR ASSIGNMENT		1

Section 2.01.	Purchase and Sale of Purchased Assets .	1
Section 2.02.	Participation Arrangements for Certain Assigned Contracts	4
Section 2.03.	Assignment and Transfer	5
Section 2.04.	Other Agreements and Certificates	7
Section 2.05.	Certain Limitations	7

ARTICLE III COMPENSATION		8

Section 3.01.	Payments and Computations	8
Section 3.02.	Allocation of Payment	8

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER PARTIES		8

Section 4.01.	Organization and Authority of the Seller Parties; Enforceability	8
Section 4.02.	No Conflict	9
Section 4.03.	Brokers	9
Section 4.04.	Title to and Condition of Purchased Assets	9
Section 4.05.	Contracts	10
Section 4.06.	Customers	10
Section 4.07.	Legal Proceedings	10
Section 4.08.	Compliance with Law	10
Section 4.09.	Privacy and Data Security	11
Section 4.10.	No Other Representations or Warranties	11

ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER		12

Section 5.01.	Organization and Authority of Buyer; Enforceability	12
Section 5.02.	No Conflict	12
Section 5.03.	Financial Ability	13
Section 5.04.	Brokers	13
Section 5.05.	Investigation	13
Section 5.06.	No Other Representations or Warranties	13

ARTICLE VI COVENANTS		14

Section 6.01.	Access to Information	14
Section 6.02.	Confidentiality	15
Section 6.03.	Third Party Consents	16
Section 6.04.	Rights to Seller Names and Seller Marks Cooperation.	17
Section 6.05.	Preservation of Books and Records	17

-i-

TABLE OF CONTENTS

(continued)


		Page

Section 6.06.	Further Assurances.	18
Section 6.07.	Non-Solicitation	18

ARTICLE VII TAX MATTERS		19

Section 7.01.	Transfer Taxes	19
Section 7.02.	Tax Cooperation	19
Section 7.03.	Allocation of Taxes	20

ARTICLE VIII INDEMNIFICATION		20

Section 8.01.	Survival	20
Section 8.02.	Indemnification by QTS TRS	21
Section 8.03.	Indemnification by Buyer	22
Section 8.04.	Notification of Claims	22

ARTICLE IX MISCELLANEOUS		23

Section 9.01.	Rules of Construction	23
Section 9.02.	Expenses	24
Section 9.03.	Notices	25
Section 9.04.	Public Announcements	25
Section 9.05.	Severability	26
Section 9.06.	Assignment	26
Section 9.07.	No Third-Party Beneficiaries	26
Section 9.08.	Entire Agreement	26
Section 9.09.	Amendments	26
Section 9.10.	Waiver	27
Section 9.11.	Governing Law	27
Section 9.12.	Dispute Resolution; Consent to Jurisdiction	27
Section 9.13.	Waiver of Jury Trial	28
Section 9.14.	Admissibility into Evidence	28
Section 9.15.	Remedies; Specific Performance	28
Section 9.16.	Non-Recourse	29
Section 9.17.	Interest	29
Section 9.18.	Disclosure Letter and Exhibits	29
Section 9.19.	Counterparts	29

- ii-


EXHIBITS

Exhibit A	Definitions
Exhibit B	Form of Bill of Sale, Assignment and Assumption Agreement

-iii-

TRANSACTION AGREEMENT

THIS TRANSACTION AGREEMENT, dated as of April 24, 2018 (the “ Effective Date ”), is made by and among Quality Technology Services Holding, LLC, a Delaware limited liability company (“ QTS TRS ”), and QualityTech, LP, a Delaware limited partnership and the sole member of QTS TRS (“ QTS LP ” and together with QTS TRS, the “ Seller Parties ”), on the one hand, and General Datatech, L.P., a Texas limited partnership (“ Buyer ” and, together with the Seller Parties, the “ Parties ”), on the other hand.

RECITALS

A. The Seller Parties are engaged in, among other businesses, providing certain hybrid cloud, hosting and managed services, and the Seller Parties or their respective Affiliates own all of the Purchased Assets (as hereafter defined), which are used in such services.

B. The Seller Parties desire to sell to Buyer, and Buyer desires to purchase from the Seller Parties or their respective Affiliates, all of the Purchased Assets, and Buyer desires to assume the Assumed Liabilities (as hereafter defined), in each case on the terms and subject to the conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01. Certain Defined Terms . Capitalized terms used in this Agreement have the meanings specified in this Agreement, including Exhibit A attached hereto.

ARTICLE II

PURCHASE AND SALE; FRAMEWORK FOR ASSIGNMENT

Section 2.01. Purchase and Sale of Purchased Assets .

(a) Purchased Assets . On the terms and subject to the conditions set forth in this Agreement (including Sections 2.02 and 2.03 ), each of the Seller Parties hereby agrees, or agrees to cause its respective Affiliates, to sell, convey, assign, transfer and deliver to Buyer, and Buyer hereby agrees to purchase, acquire and accept from each such Seller Party or its respective Affiliates, all of such Seller Party’s or Affiliate’s right, title and interest in, to and under the following assets and rights, as the same shall exist immediately prior to the applicable Transfer Effective Time (as defined below), other than the Excluded Assets (collectively, the “ Purchased Assets ”):

(i) the Contracts listed on Section 2.01(a)(i) of the Disclosure Letter (the “ Assigned Contracts ”);

(ii) the hardware, equipment and other tangible personal property used exclusively in connection with services under the Assigned Contracts (the “ Purchased Tangible Personal Property ”);

(iii) only to the extent transferable, the individual software programs, instances or seats of software, including commercial software, and the corresponding licenses from the licensor therefor, related exclusively to services under the Assigned Contract and that the Parties agree in writing to Transfer (the “ Transferred Software and Licenses ”);

(iv) only to the extent transferable, all Permits and other approvals by a Government Authority required in connection with FedRAMP to continue offering the services under applicable Assigned Contracts, or form of submission materials in lieu thereof;

(v) all accounts receivable and notes receivable to the extent related exclusively to any Assigned Contract; and

(vi) only to the extent maintained in separate form from books and records of the Excluded Assets, all Records.

(b) Excluded Assets . Notwithstanding anything to the contrary herein, other than the Purchased Assets, all other assets or rights of every kind and description, wherever located, whether real, personal or mixed, tangible or intangible, that are owned by or in the possession of any of the Seller Parties or their respective Affiliates shall be retained by the Seller Parties and their Affiliates and shall be excluded from the Purchased Assets (collectively, the “ Excluded Assets ”). For the avoidance of doubt, without limiting the foregoing, the Excluded Assets shall include each Seller Party’s right, title and interest in, to and under the following assets and rights, as the same shall exist immediately prior to any Transfer Effective Time:

(i) all cash and cash equivalents of the Seller Parties and their respective Affiliates, including cash and cash equivalents used as collateral for financial support arrangements, guarantees or other financial assurance arrangements, if any, maintained by the Seller Parties or any of their respective Affiliates in connection with the Purchased Assets and deposits with utilities, insurance companies and other Persons and bank accounts of the Seller Parties;

(ii) all rights, title and interests in any real property or mixed real and personal property owned or leased by, or in the possession of, the Seller Parties or their respective Affiliates;

(iii) all rights, title and interests in any personal property, whether tangible or intangible, owned or leased by, or in the possession of, the Seller Parties or their respective Affiliates, other than the Purchased Assets;

(iv) all capital stock, securities or other equity interests of the Seller Parties, their respective Affiliates or any other Person;

(v) all rights, title and interest in, to and under any Contracts, other than the Assigned Contracts;

(vi) all rights to the Seller Names and Seller Marks, together with any Contracts, agreements or understandings granting rights to use the same;

(vii) all Seller Intellectual Property, Seller Technology and all rights thereto, other than the Transferred Software and Licenses;

(viii) all insurance policies and binders of the Seller Parties and their respective Affiliates and all rights to applicable claims and proceeds thereunder;

(ix) all refunds of Taxes and all prepaid income Taxes arising from or with respect to the Purchased Assets prior to the Transfer Effective Time;

(x) all Permits and other approvals by a Government Authority, regardless of whether used (exclusively or otherwise) in connection with the Purchased Assets, except as included as a Purchased Asset above;

(xi) (A) any corporate minute books (and other similar corporate or other entity records) and stock records of the Seller Parties, (B) any books and records relating to the Excluded Assets, (C) any books and records or other materials of or in the possession of the Seller Parties that (x) any of the Seller Parties are required by Law to retain (copies of which, to the extent related exclusively to any Purchased Asset or Assumed Liability and as permitted by Law, will be made available to Buyer upon Buyer’s reasonable request), (y) any of the Seller Parties reasonably believes are necessary to enable the Seller Parties to prepare and/or file Tax Returns (copies of which, to the extent related exclusively to any Purchased Asset or Assumed Liability and as permitted by Law, will be made available to Buyer upon Buyer’s reasonable request) or (z) any of the Seller Parties are prohibited by Law from delivering to Buyer, or (D) any copies of any books and records that Seller Parties and their respective Affiliates retain pursuant to Section 6.05 ;

(xii) (A) all records and reports prepared or received by any Seller Party or any of its Affiliates in connection with the sale of the Purchased Assets or the transactions contemplated hereby, including all analyses relating to the Purchased Assets or Buyer so prepared or received, (B) all confidentiality agreements with prospective purchasers of the Purchased Assets or any portion thereof, and all bids, letters of intent, term sheets, expressions of interest and other proposals received from third parties with respect thereto and (C) all privileged communications and all privileged materials, documents and records;

(xiii) all rights and claims of the Seller Parties and their Affiliates against third parties, whether in tort, contract or otherwise and whether mature, contingent or otherwise (A) related to the Excluded Liabilities, or (B) related to the Purchased Assets, but only, in the case of clause (A), to the extent relating to periods prior to the applicable Transfer Effective Time; and

(xiv) all rights of the Seller Parties under the Transaction Documents.

(c) Assumed Liabilities . On the terms and subject to the conditions set forth in this Agreement (including Sections 2.02 and 2.03 ), as partial consideration for the Purchased Assets, Buyer agrees to assume and thereafter timely pay, discharge and perform in accordance with their terms, only the liabilities and obligations of the Seller Parties arising out of or relating to each Purchased Asset, as the same shall arise from and after the applicable Transfer Effective Time (collectively, the “ Assumed Liabilities ”), including the following:

(i) all Liabilities under or relating to any of the Assigned Contracts that arise from and after the applicable Transfer Effective Time, including all channel partner expense obligations thereunder;

(ii) any Liabilities relating to errors or omissions or allegations of errors or omissions or claims of design or other defects with respect to any service provided under the Assigned Contracts that arise from and after the applicable Transfer Effective Time;

(iii) all Liabilities relating to or in connection with any data privacy, security or breach notification obligations or Liabilities, whether in tort, contract, statutory or regulatory action or otherwise, with respect to any of the Purchased Assets that arise from and after the applicable Transfer Effective Time;

(iv) all Buyer Taxes;

(v) all accrued and unpaid charges, fees and expenses related to the Purchased Assets, to the extent arising out of activities occurring after the applicable Transfer Effective Time; and

(vi) all accounts payable, notes payable, trade payables and expenses payable related to the Purchased Assets.

(d) Excluded Liabilities . Notwithstanding anything to the contrary herein, it is expressly understood and agreed that Buyer shall not assume hereunder any Liability of any Seller Party or any of its Affiliates not expressly assumed as an Assumed Liability, and, as between Buyer and Seller Parties, Seller Parties or their applicable Affiliate shall retain all Liabilities of any Seller Party and its Affiliates related to the Excluded Assets (collectively, the “ Excluded Liabilities ”).

Section 2.02. Participation Arrangements for Certain Assigned Contracts .

(a) Notwithstanding anything to the contrary herein, and subject to the provisions of this Section 2.02 , to the extent that the sale, conveyance, assignment, transfer, or delivery requires a Third Party Consent, or absent such consent would constitute a breach thereof or violation of applicable Law, and such Third Party Consent has not been obtained prior to the Effective Date, this Agreement shall not constitute a sale, conveyance, assignment, transfer or delivery, or an attempted sale, conveyance, assignment, transfer or delivery, of such Assigned Contract.

(b) Subject to the terms set forth on Section 2.02(b) of the Disclosure Letter, if, as of the intended time of a Transfer with respect to any Assigned Contract as contemplated

under Section 2.03 , any such Third Party Consent described in Section 2.02(a) above in respect of an Assigned Contract has not yet been obtained, or if an attempted transfer or assignment of any Assigned Contract would constitute a breach thereof or a violation of Law, the Seller Parties and Buyer (at its option and in its sole discretion) shall (on behalf of themselves and their respective Affiliates), to the maximum extent permitted under such Assigned Contract and applicable Law, enter into an arrangement under which Buyer would, in compliance with Law, obtain substantially all of the material rights and benefits and assume the obligations and bear the economic burdens associated with such Assigned Contract, claim, right or benefit in accordance with this Agreement (a “ Participation Arrangement ”); provided that, consistent with Section 6.03 and subject to Section 2.05 , each Party shall exercise commercially reasonable efforts after the Effective Date to obtain the applicable Third Party Consent in order to effect the assignment or transfer of each Assigned Contract to Buyer in accordance with this Agreement. Such Participation Arrangements may include subcontracting, sublicensing or subleasing to Buyer such Assigned Contract, claim, right or benefit or entering into an arrangement under which:

(i) the Seller Parties would enforce, upon Buyer’s reasonable request, for the benefit (and at the expense) of Buyer any and all of their rights against a third party (including any Government Authority) associated with such Assigned Contract, claim, right or benefit;

(ii) the Seller Parties would promptly pay to Buyer when received all monies received by them under any such Assigned Contract, claim, right or benefit, net of (w) the Seller Parties’ actual, out-of-pocket expenses reasonably incurred in connection with any arrangement contemplated by this Section 2.02(a) , (x) any payments owed by Buyer under the Channel Agreement, (y) any payments owed by Buyer under the Colocation Agreement and (z) any payments owed by Buyer under the Transition Services Agreement (as defined below); and

(iii) Buyer would perform or cause to be performed (at its expense) all of the Seller Parties’ obligations thereunder, unless otherwise provided under the Transition Services Agreement.

(c) For the avoidance of doubt, any asset, claim, right or benefit subject to a Participation Arrangement shall be deemed to be a Purchased Asset for all purposes under this Agreement, and any obligations subject to a Participation Arrangement shall be deemed to be an Assumed Liability for all purposes under this Agreement.

(d) With respect to any Assigned Contract subject to a Participation Arrangement, if and when the applicable Third Party Consent is obtained, the Parties shall effect, or cause their respective Affiliates to effect, the assignment or transfer to Buyer of such Assigned Contract and, as applicable, any related Tangible Personal Property and/or Transferred Software and Licenses in accordance with Section 2.03 .

Section 2.03. Assignment and Transfer . From time to time on or after the Effective Date, subject to the provisions of Section 2.02 , each Party shall use commercially reasonable efforts to effect the purchase, sale, conveyance, assignment, transfer and delivery of the Purchased Assets, and the assignment and assumption of the Assumed Liabilities, through one or

more formal assignments or transfers by the Seller Parties to Buyer (each, a “ Transfer ”) at such times and on such dates as may be reasonably determined by the Seller Parties and Buyer. A Transfer with respect to any Assigned Contract shall occur within fifteen (15) days after receipt of any Third-Party Consent with respect to such Assigned Contract. The effective time of a Transfer of a Purchased Asset and/or Assumed Liabilities, as the case may be, shall be the time when Buyer and the applicable Seller Party or its Affiliate(s) enter into a Bill of Sale, Assignment and Assumption Agreement with respect thereto (each, a “ Transfer Effective Time ”). To the extent necessary to enable Buyer to discharge its obligations under an Assigned Contract following its Transfer, temporary transition services shall be provided in accordance with the Transition Services Agreement. At each Transfer Effective Time, the Parties shall exchange the following deliverables for the Transfer of the applicable Purchased Asset(s) and/or Assumed Liabilities:

(b) cash payment by Buyer to QTS TRS equal to the sum of (x) the liquidation value of any Purchased Tangible Personal Property, as applicable, based on a valuation by an accounting, financial or consulting firm designated and mutually agreed to by both parties, and (y) any Net AR/AP Amount, as applicable, for such Assigned Contract(s) or as otherwise the Parties may agree in writing to address certain accounts receivable and accounts payable;

(c) a bill of sale, assignment and assumption agreement, in substantially the form attached hereto as Exhibit B (each, a “ Bill of Sale, Assignment and Assumption Agreement ”), duly executed by Buyer and the applicable Seller Party or its Affiliate(s) to Transfer to Buyer such Purchased Asset(s) and any Assumed Liabilities related thereto and including a copy of each Assigned Contract and all amendments, modifications and restatements thereto transferred under such Bill of Sale, Assignment and Assumption Agreement, a list of applicable accounts receivable and accounts payable dated on or about the Transfer Effective Time, and, only to the extent maintained in separate form from books and records of the Excluded Assets, all Records associated with such Purchased Asset(s) and any Assumed Liabilities related thereto;

(d) the Colocation Agreement (as defined below), or a subsequent amendment or addendum thereto or work order thereunder, as the case may be, duly executed by Buyer and the applicable Seller Party or its Affiliate(s), providing for colocation, communication and managed services with respect to such Purchased Asset(s) and/or Assumed Liabilities; and

(e) if necessary or appropriate to enable Buyer to discharge its obligations under such Assigned Contract, an amendment or addendum to the Transition Services Agreement, duly executed by Buyer and the applicable Seller Party, providing for certain temporary transition services as may be reasonably agreed by the Parties.

Buyer acknowledges on behalf of itself and its Affiliates and its and their Representatives, successors and assigns that each Purchased Asset and, as applicable, the Assumed Liabilities shall remain in the dominion and control of the Seller Parties until the applicable Transfer Effective Time.

Section 2.04. Other Agreements and Certificates .

(a) Channel Agreement . Concurrently with the execution of this Agreement, as partial consideration for the transactions contemplated hereby, QTS TRS and Buyer shall enter into a channel agreement (the “ Channel Agreement ”), pursuant to which Buyer shall pay to QTS TRS monthly channel fees with respect to certain Assigned Contracts that are or become Transferred to Buyer pursuant to one or more Bill of Sale, Assignment and Assumption Agreements or subject to Participation Arrangements under this Agreement, as the case may be, and certain other agreements, in accordance with the terms and conditions set forth in the Channel Agreement.

(b) Colocation Agreement . Concurrently with the execution of this Agreement or prior to any Transfer among the Parties, as partial consideration for the transactions contemplated hereby, QTS TRS and/or such Affiliates as QTS TRS may designate, on the one hand, and Buyer, on the other hand, shall enter into a colocation agreement (the “ Colocation Agreement ”), pursuant to which Buyer shall become a customer of QTS TRS and/or such other Seller Parties and under which, among other things, (i) QTS TRS and/or such other Affiliates will provide Buyer with colocation, communication and managed services with respect to the Assigned Contracts and Purchased Tangible Personal Property to enable Buyer to discharge its obligations under the Assigned Contracts after the applicable Transfer Effective Time, and (ii) in accordance with the terms set forth on Section 2.04(b) of the Disclosure Letter, Buyer will pay to QTS TRS and/or such other Affiliates such payments and will discharge such obligations to QTS TRS and/or such other Affiliates as set forth in the Colocation Agreement in exchange for such services; provided that the Parties may supplement the Colocation Agreement, as may be reasonably agreed in connection with each Transfer.

(c) Transition Services Agreement . Concurrently with the execution of this Agreement, QTS TRS and Buyer shall enter into a transition services agreement (the “ Transition Services Agreement ”), providing for certain temporary transition services as may be reasonably agreed by the Parties.

(d) Certificates . Concurrently with the execution of this Agreement, (i) each Party shall execute and deliver to the other Party a certificate dated as of the Effective Date and signed by the Secretary of such Party, certifying as to (A) the necessary resolutions and actions taken by such Party’s governing board, general partner, managing member or members, as the case may be, in connection with the adoption and approval of this Agreement, the Transaction Documents and the transactions contemplated hereunder and thereunder, and (B) the incumbency and signature of the officers of such Party executing this Agreement and the other Transaction Documents and any other certificate or document to be delivered by such Party in connection with this Agreement or the other Transaction Documents, and (ii) the Seller Parties shall execute and deliver to Buyer a certificate of non-foreign status in compliance with Section 1445 of the Code (and the applicable Treasury Regulations thereunder).

Section 2.05. Certain Limitations . Notwithstanding anything in this Agreement to the contrary or otherwise agreed to in the Transition Services Agreement:

(a) on and after August 31, 2018, each of the Seller Parties shall continue to have all rights, but shall have no further obligations under this Article II , Section 6.01 and Section 6.03 , including with respect to (i) entering into, continuing or discontinuing any Participation Arrangement with respect to any Assigned Contract, (ii) exercising efforts or taking any action to obtain any Third Party Consent, or (iii) effecting any Transfer of any Purchased Asset(s) and/or Assumed Liabilities; and

(b) the Seller Parties shall have no obligations to sell, convey, assign, transfer and deliver any Assigned Contract against the expressed wishes of the customer under such Assigned Contract, whether or not a Third Party Consent is required thereunder, in which case such Contract shall no longer be deemed to be an “Assigned Contract” hereunder and, for the avoidance of doubt, Buyer shall have no obligation to any Seller Party or any of their respective Affiliates, or to any third party to such Contract.

ARTICLE III

COMPENSATION

Section 3.01. Payments and Computations . All payments under this Agreement shall be paid by ACH of immediately available funds to the account or accounts designated by QTS TRS and shall be free and clear of any withholding Taxes. All computations of interest shall be made in accordance with Section 9.17 .

Section 3.02. Allocation of Payment . Any monthly channel fees, any Net AR/AP Amounts and any Assumed Liabilities in respect of an Assigned Contract shall be allocated to the applicable Assigned Contract(s). Any cash payments pursuant to Section 2.03(a)(x) shall be allocated to the applicable Purchased Tangible Personal Property. QTS TRS and Buyer shall treat any indemnity payments made pursuant to Article VIII as adjustments to the amount of payments under Section 2.03 apportioned to the Assigned Contract(s), beginning with the earliest Transfer Effective Time, for income Tax purposes unless applicable Tax Law causes such payment not to be so treated.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SELLER PARTIES

Each Seller Party represents and warrants to Buyer that, except as set forth in the Disclosure Letter:

Section 4.01. Organization and Authority of the Seller Parties; Enforceability . Each Seller Party is a corporation, limited partnership, limited liability company or other entity duly incorporated, formed or organized, validly existing and, to the extent legally applicable, in good standing under the Laws of its jurisdiction of incorporation, formation or organization. Each Seller Party is duly qualified to do business and is in good standing in the jurisdiction of its organization and as a foreign corporation or other legal entity in each jurisdiction where the character of the properties owned or leased by it or the nature of the business transacted by it requires it to be so qualified, except where any such failure could not reasonably be expected to

result in a material adverse effect on such Seller Party’s assets, properties, business or operations. Each Seller Party has the requisite corporate or other appropriate power to execute, deliver and perform its obligations under each Transaction Document (including the consummation of the Transactions) to which it is a party. The execution, delivery and performance by each Seller Party of each Transaction Document to which it is a party have been duly authorized by all requisite corporate or other entity action on the part of such Seller Party. This Agreement has been and the other Transaction Documents will be duly executed and delivered by each Seller Party, and (assuming due authorization, execution and delivery thereof by the other parties hereto and thereto) this Agreement constitutes, and upon execution and delivery thereof the other Transaction Documents will constitute, legal, valid and binding obligations of the applicable Seller Parties thereto, enforceable against the Seller Parties party thereto in accordance with their respective terms, subject to the Bankruptcy and Equity Exception.

Section 4.02. No Conflict . Assuming that all Third Party Consents required with respect to the Purchased Assets or the Assumed Liabilities have been obtained, or will be obtained prior to each respective Transfer Effective Time, the execution, delivery and performance by the Seller Parties of the Transaction Documents do not and will not:

(i) violate or conflict with the certificate or articles of incorporation, formation or limited partnership, or bylaws, operating agreement or limited partnership agreement, or similar organizational documents of any of the Seller Parties;

(ii) conflict with or violate in any material respect any Law or Order applicable to the Seller Parties or the Purchased Assets or the Assumed Liabilities; or

Section 4.03. Brokers . As of the date hereof, except for fees and expenses of Evercore Group L.L.C. (the “ Sellers’ Bankers ”), no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission from the Seller Parties in connection with any Transaction. The Seller Parties are solely responsible for the investment advisory fees and expenses of the Sellers’ Bankers in connection with the Transactions.

Section 4.04. Title to and Condition of Purchased Assets . T he Seller Parties have good and marketable title to all of the Purchased Assets, free and clear of all Liens, except Permitted Liens. All items of Purchased Tangible Personal Property (a) are in good operating condition and in a state of good maintenance and repair, ordinary wear and tear excepted, (b) are suitable for the purposes used, (c) were acquired and are usable in the connection with performing services under the Assigned Contracts, and (d) conform in all material respects to all Laws applicable thereto. There is no defect or problem with any of such Purchased Tangible Personal Property , other than ordinary wear and tear.

Section 4.05. Contracts . The Assigned Contracts are legal, valid, binding and enforceable in accordance with their respective terms with respect to the applicable Seller Party or its respective Affiliate, and, to the Knowledge of QTS LP, each other party to such Assigned Contracts, subject to the Bankruptcy and Equity Exception. There is no existing material default or material breach of any Seller Party or any of its Affiliates under any Assigned Contract and, to the Knowledge of QTS LP, there is no such material default with respect to any third party to any Assigned Contract. Except in the ordinary course and consistent with past practice, neither any Seller Party nor any Affiliate of any Seller Party is participating in any discussions or negotiations with any third party regarding modification of or amendment to any Assigned Contract or entry in any new Contract applicable to such Seller Party or the real or personal property of such Seller Party that would be an Assigned Contract.

Section 4.06. Customers . Section 4.06 of the Disclosure Letter contains a correct and complete list of the names of the top twenty-five (25) customers of the Seller Parties’ hybrid cloud, hosting and managed services (by amount of revenue received by the Seller Parties from such customers by monthly recurring revenue) (the “ Top Customers ”). Prior to the date hereof, true, correct and complete copies of all Assigned Contracts of the Top Customers have been provided (or made available) by the Seller Parties to Buyer. To the Knowledge of QTS LP, no event has occurred that could materially and adversely affect the relations between the Seller Parties and any Top Customer. Except as set forth on Schedule 4.06 , (i) no Top Customer has, during the twelve (12) months prior to the Effective Date, cancelled, terminated or, to the Knowledge of QTS LP, made any threat to cancel or otherwise terminate any of its Contracts with the Seller Parties or to decrease its orders from the Seller Parties and (ii) to the Knowledge of QTS LP, no Top Customer intends to terminate or materially alter its business relations with the Seller Parties, either as a result of the transactions contemplated hereby or otherwise.

Section 4.07. Legal Proceedings . There is no Action pending or, to the Knowledge of QTS LP, threatened against, relating to or involving any Seller Party (or pending or threatened against any of the officers, directors, managers, employees or independent contractors of any Seller Party) with respect to the operation of or performance under the Purchased Assets (a “ Legal Proceeding ”). To the Knowledge of QTS LP, there is no reasonable basis for such a Legal Proceeding with respect to the operation of or performance under the Purchased Assets. No Seller Party (or any of the officers, directors, managers, employees or independent contractors of any Seller Party) is subject to any judgment, decree, injunction, rule or order of any court, arbitration panel or Government Authority with respect to the operation of or performance under the Purchased Assets.

Section 4.08. Compliance with Law . Each Seller Party is in compliance in all material respects with all applicable Laws in connection with the operation of or performance under the Purchased Assets. In each case with respect to the Purchased Assets, (i) no Seller Party has been charged with, or received any written notice that it is under investigation with respect to, any violation of any applicable Law or other requirement of a Government Authority, (ii) no Seller Party is a party to, or bound by, any order, judgment, decree, injunction, rule or award of any Government Authority or arbitrator, and (iii) each Seller Party has filed all material reports and has all material Permits in connection with the operation of or performance under the Purchased Assets required to be filed with any Government Authority on or prior to the date hereof.

Section 4.09. Privacy and Data Security .

(a) Compliance with Privacy and Data Security Laws . To the Knowledge of QTS LP, the Seller Parties have complied at all times in all material respects with all applicable Laws regarding the collection, use, storage, transfer, or disposal of personal information in respect of the Purchased Assets.

(b) Privacy and Data Security Contractual Obligations . To the Knowledge of QTS LP, the Seller Parties are in compliance in all material respects with the terms of all Assigned Contracts relating to data privacy, security, or breach notification (including provisions that impose conditions or restrictions on the collection, use, storage, transfer, or disposal of personal information).

(c) Privacy and Data Security Complaints and Investigations . To the Knowledge of QTS LP, no Person (including any Government Authority) has commenced any Action relating to information privacy or data security practices in respect of the Purchased Assets, including with respect to the collection, use, transfer, storage, or disposal of personal information maintained by or on behalf of the Seller Parties, or, to the Knowledge of QTS LP, threatened any such Action, or made any complaint, investigation, or inquiry relating to such practices.

Section 4.10. No Other Representations or Warranties . Except for the representations and warranties expressly set forth in this Article IV (as modified by the Disclosure Letter), none of the Seller Parties or any other Person has made or makes, or shall be deemed to have made or to make, any other representation or warranty of any kind whatsoever, express or implied, written or oral, at law or in equity, and the Seller Parties hereby disclaim all other representations and warranties of any kind whatsoever, express or implied, written or oral, at law or in equity, whether made by or on behalf of any Seller Party or any other Person. Buyer acknowledges and agrees that is not relying on any representations or warranties other than those set forth herein; provided , that nothing in this Section 4.10 shall prohibit Buyer from making a claim against the Seller Parties for fraud. Without limiting the foregoing, except for the representations and warranties expressly set forth in this Article IV , each Seller Party hereby disclaims all Liability and responsibility for all projections, forecasts, estimates, financial statements, financial information, appraisals, statements, promises, advice, data or information made, communicated or furnished (orally or in writing, including electronically) to Buyer or any of Buyer’s Affiliates or any Representatives of Buyer or any of Buyer’s Affiliates, including omissions therefrom, and no Seller Party makes any representation or warranty of any kind whatsoever, express or implied, written or oral, at law or in equity, to Buyer or any of its Affiliates or any Representatives of Buyer or any of its Affiliates regarding the success, profitability or value of the Purchased Assets or the Assumed Liabilities.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer hereby represents and warrants to the Seller Parties that:

Section 5.01. Organization and Authority of Buyer; Enforceability . Buyer is a corporation, limited partnership, limited liability company or other entity duly incorporated, formed or organized, validly existing and, to the extent legally applicable, in good standing under the Laws of its jurisdiction of incorporation, formation or organization. Buyer is duly qualified to do business and is in good standing in the jurisdiction of its organization and as a foreign corporation or other entity in each jurisdiction where the character of the properties owned or leased by it or the nature of the business transacted by it requires it to be so qualified, except where any such failure could not reasonably be expected to result in a material adverse effect on such Buyer’s assets, properties, business or operations. Buyer has the requisite corporate or other appropriate power to execute, deliver and perform its obligations under the Transaction Documents (including the consummation of the Transactions). The execution, delivery and performance of the Transaction Documents by Buyer have been duly authorized by all requisite corporate or organizational action on the part of Buyer, and no shareholder or other similar approval is required in connection with Buyer’s execution, delivery and performance of the Transaction Documents. This Agreement has been and the other Transaction Documents will be, duly executed and delivered by Buyer, and (assuming due authorization, execution and delivery by the other parties hereto and thereto) this Agreement constitutes, and upon execution and delivery thereof, the other Transaction Documents will constitute, legal, valid and binding obligations of Buyer enforceable against Buyer in accordance with their respective terms, subject to the Bankruptcy and Equity Exception.

Section 5.02. No Conflict . Assuming that all Third Party Consents required with respect to the Purchased Assets or the Assumed Liabilities have been obtained, or will be obtained prior to each respective Transfer Effective Time, the execution, delivery and performance by Buyer of the Transaction Documents on the date hereof do not and will not:

(i) violate or conflict with the certificate or articles of incorporation, formation or limited partnership or bylaws, operating agreement, limited partnership agreement or similar organizational documents of Buyer;

(ii) conflict with or violate in any material respect any Law or Order applicable to Buyer; or

(iii) result in any breach of, or constitute a default under, or give rise to any right of consent, revocation, suspension, termination, withdrawal, cancellation, modification or acceleration of any material right or obligation or to a loss of any material benefit under any provision of any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other material instrument to which Buyer or any of its Subsidiaries or Affiliates is a party or by which any of such assets or properties is bound.

Section 5.03. Financial Ability . Buyer has, and will have, (a) sufficient immediately available funds and the financial ability to pay the payments due under this Agreement and to pay any expenses incurred by Buyer in connection herewith and (b) the resources and capabilities (financial and otherwise) to perform its obligations under the Transaction Documents and in each case to pay any expenses incurred by Buyer in connection therewith.

Section 5.04. Brokers . No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission from Buyer or any of Buyer’s Affiliates in connection with any Transaction.

Section 5.05. Investigation . Buyer acknowledges and agrees that it (a) has completed such inquiries and investigations as it has deemed appropriate into, and, based thereon, has formed an independent judgment concerning, the Purchased Assets, the Assumed Liabilities and the Transactions, and any other rights or obligations to be transferred or assumed, directly or indirectly, pursuant to the Transaction Documents and (b) has been furnished with, or given access to, all such projections, forecasts, estimates, appraisals, statements, promises, advice, data or information about the Seller Parties, the Purchased Assets, the Assumed Liabilities and any other rights or obligations to be transferred or assumed, directly or indirectly, pursuant to the Transaction Documents, as it has requested or required. Buyer further acknowledges and agrees that (x) the only representations and warranties made by the Seller Parties are the representations and warranties expressly set forth in Article IV (as modified by the Disclosure Letter) and Buyer has not relied upon any other express or implied representations, warranties or other projections, forecasts, estimates, appraisals, statements, promises, advice, data or information made, communicated or furnished by or on behalf of the Seller Parties or any of their respective Affiliates, any Representatives of the Seller Parties or any of their respective Affiliates or any other Person, including any projections, forecasts, estimates, appraisals, statements, promises, advice, data or information made, communicated or furnished by or through the Seller Bankers, or management presentations, data rooms (electronic or otherwise) or other due diligence information, and that Buyer will not have any right or remedy arising out of any such representation, warranty or other projections, forecasts, estimates, appraisals, statements, promises, advice, data or information and (y) any claims Buyer may have for any breach of any representation or warranty shall be based solely on the representations and warranties of the Seller Parties expressly set forth in Article IV (as modified by the Disclosure Letter). Except as otherwise expressly set forth in this Agreement, Buyer understands and agrees that the Purchased Assets and the Assumed Liabilities are being furnished on an “AS-IS” and “WHERE-IS” basis, subject to the representations and warranties contained in Article IV (as modified by the Disclosure Letter), without any other representations or warranties of any nature whatsoever.

Section 5.06. No Other Representations or Warranties . Except for the representations and warranties expressly set forth in this Article V , none of Buyer or any other Person has made or makes, or shall be deemed to have made or to make, any other representation or warranty of any kind whatsoever, express or implied, written or oral, at law or in equity, and Buyer hereby disclaims all other representations and warranties of any kind whatsoever, express or implied, written or oral, at law or in equity, whether made by or on behalf of Buyer or any other Person. Each Seller Party acknowledges and agrees that it is not relying on any representations or warranties other than those set forth herein; provided , that nothing in this Section 5.06 shall prohibit the Seller Parties from making a claim against Buyer for fraud.

ARTICLE VI

COVENANTS

Section 6.01. Access to Information .

(a) During the period from the Effective Date to August 31, 2018, or such other end date as the Parties may agree in writing, upon reasonable prior notice, the Seller Parties shall, and shall cause each of the other Seller Parties and their Affiliates to, furnish to the Representatives of Buyer such information that relates exclusively to any of the Purchased Assets or the Assumed Liabilities as Buyer or its Representatives may from time to time reasonably request for purposes of consummating the Transactions.

(b) From and after the Effective Date, in connection with any reasonable business purpose, including the preparation of Tax Returns, claims relating to Excluded Liabilities, financial statements, obligations to any Government Authority, or the determination of any matter relating to the rights or obligations of the Seller Parties or any of their Affiliates under any Transaction Document, upon reasonable prior notice, and except to the extent necessary to (i) ensure compliance with any applicable Law, (ii) preserve any applicable privilege (including the attorney-client privilege) or (iii) comply with any contractual confidentiality obligations, Buyer shall, and shall cause each of its Affiliates and their respective Representatives to, at the Seller Parties’ sole cost and expense, (A) afford each Seller Party and its Representatives and their respective Affiliates reasonable access, during normal business hours, to the properties, books and records of Buyer and its Affiliates exclusively in respect of the Purchased Assets and the Assumed Liabilities, (B) furnish to each Seller Party and its Representatives and their respective Affiliates such additional financial and other information regarding the Purchased Assets and the Assumed Liabilities as any Seller Party or its Representatives may from time to time reasonably request and (C) at Buyer’s sole discretion, make available to each Seller Party and its Representatives and their respective Affiliates those employees of Buyer or its Affiliates whose assistance, expertise, testimony, notes or recollections or presence may be necessary to assist such Seller Party, its Representatives or their respective Affiliates in connection with its inquiries for any purpose referred to above, including the presence of such persons as witnesses in hearings or trials for such purposes; provided , however , that such investigation shall not unreasonably interfere with the business or operations of Buyer or any of its Affiliates; and provided , further , that the auditors and accountants of Buyer or its Affiliates shall not be obligated to make any work papers available to any Person except in accordance with such auditors’ and accountants’ normal disclosure procedures and then only after such Person has signed a customary agreement relating to such access to work papers in form and substance reasonably acceptable to such auditors or accountants.

(i) (A) in no event shall the Seller Parties or their respective Affiliates be obligated to provide any (1) access or information in violation of any applicable Law, (2) information with respect to bids, the identity of any bidder, confidentiality or non-disclosure agreements, letters of intent, term sheets, expressions of interest or other proposals received in connection with transactions comparable to or overlapping in any manner with those

contemplated by this Agreement or any information or analysis relating to any such communications, (3) information the disclosure of which would jeopardize any applicable privilege (including the attorney-client privilege) available to any of the Seller Parties or any of their respective Affiliates relating to such information, (4) information the disclosure of which would cause any Seller Party or any of its Affiliates to breach a confidentiality obligation to which it is bound or (5) any consolidated Tax Return of any Seller Party or its Affiliates and (B) the investigation contemplated by this Section 6.01 shall not unreasonably interfere with any of the businesses, personnel or operations of any of the Seller Parties or any of their respective Affiliates;

(ii) the auditors and accountants of any of the Seller Parties or any of their respective Affiliates shall not be obligated to make any work papers available to any Person except in accordance with such auditors’ and accountants’ normal disclosure procedures and then only after such Person has signed a customary agreement relating to such access to work papers in form and substance reasonably acceptable to such auditors or accountants;

(iii) without the prior written consent of QTS TRS (which shall not be unreasonably withheld), neither Buyer nor any of its Representatives shall contact any third party under such Assigned Contract or any Persons that Control or are Affiliated with any such third party or their respective Representatives, in each case in connection with or with respect to this Agreement, any other Transaction Document or any Transaction, until such Assigned Contract is Transferred to Buyer in accordance with Section 2.03 ; and

(iv) except as specifically related to the Purchased Assets and the Assumed Liabilities in connection with the Transfer thereof, no Seller Party shall be required to disclose, or cause or seek to cause the disclosure of, to Buyer or its Affiliates or Representatives (or provide access to any properties, books or records of any Seller Party or any of its Affiliates that would reasonably be expected to result in the disclosure to such persons or others of) any competitively sensitive information or any confidential information relating to trade secrets, proprietary know-how, processes, trademark, trade name, service mark or copyright applications or product development, or pricing and marketing plans, nor shall any Seller Party be required to permit or cause or seek to cause others to permit Buyer or its Affiliates or Representatives to have access to or to copy or remove from the properties of any Seller Party or any of its Affiliates any documents, drawings or other materials that might reveal any such confidential information.

(d) If so requested by QTS TRS any time on or after the Effective Date, Buyer shall (and, as applicable, shall cause its Affiliates and Representatives to), at the expense of QTS TRS, enter into a customary joint defense agreement or common interest agreement with one or more of the Seller Parties or any of their respective Affiliates with respect to any information provided to Buyer, or to which Buyer gains access, pursuant to this Section 6.01 or otherwise.

(e) Buyer and the Seller Parties shall conduct their interactions in compliance with applicable Law.

Section 6.02. Confidentiality . Without limiting the obligations set forth in the Confidentiality Agreement, each Party agrees that all non-public information concerning the

transactions contemplated by this Agreement and the Parties’ performance of their respective obligations hereunder (including Section 6.01 ) will be used by such Party solely in the course of its performance hereunder and will be treated confidentially for so long as it remains non-public and does not otherwise become public by the unauthorized disclosure of such Party in violation of this Section 6.01 . Except as contemplated in the performance of its obligations hereunder or as permitted by Section 9.04 hereof, or as otherwise required by applicable Law or Government Authority, such Party shall not disclose such information to any third party, other than such Party’s Representatives, without the prior written consent of the other Party. Notwithstanding the foregoing, the following will not constitute “non-public information” for purposes of this Agreement: (a) information which was already in such Party’s possession without any obligation of confidentiality prior to its receipt from the other Party; (b) information which is obtained by such Party from a third party who, insofar as is known to such Party, is not prohibited from transmitting the information to such Party by a contractual, legal or fiduciary obligation to the other Party; and (c) information which is or becomes publicly available through no fault of such Party. At the written request of the other Party and to the extent practicable and permitted by applicable Law or Government Authority, such Party will promptly, at its election, destroy or return paper copies of such information to the other Party at the other Party’s sole expense, and destroy that portion of such information that may be found in analyses, compilations, studies or other documents prepared by such Party or its representatives. Notwithstanding the foregoing, such information may be retained by such Party and its Representatives to the extent (i) required by applicable Law, Government Authority, or internal compliance or document retention policies or (ii) electronically stored pursuant to automatic back-up storage or archival procedures or systems.

Section 6.03. Third Party Consents . The Seller Parties agree to use commercially reasonable efforts to obtain any consents and approvals from any third party (including any Government Authority) or the waiver of any right of any third party (including any Government Authority) that may be required under any Assigned Contract in connection with the Transactions (collectively, the “ Third Party Consents ”). Buyer agrees to use commercially reasonable efforts to cooperate with the Seller Parties to obtain the Third Party Consents. Notwithstanding anything in this Agreement to the contrary, except as set forth in this Section 6.03 , no Seller Party or any of its Affiliates shall be required to compensate any third party more than the lesser of (x) $10,000.00 or (y) 25% of the annual value of such Assigned Contract, commence or participate in any Action or offer or grant any accommodation (financial or otherwise, including any accommodation or arrangement to remain secondarily liable or contingently liable for any Assumed Liability) to any third party to obtain any such Third Party Consent, and no Seller Party shall have any obligations under this Section 6.03 on and after August 31, 2018. For the avoidance of doubt, no representation, warranty or covenant of the Seller Parties contained in the Transaction Documents shall be breached or deemed breached, and no condition shall be deemed not satisfied, based on (a) the failure to obtain any Third Party Consents or (b) any Action commenced or threatened by or on behalf of any Person arising out of or relating to the failure to obtain any such Third Party Consents.

Section 6.04. Rights to Seller Names and Seller Marks Cooperation.

(a) Except as otherwise provided in this Section 6.04 or otherwise expressly agreed by the Seller Parties, Buyer and its Affiliates shall not use in any manner any of the Seller Names and Seller Marks.

(b) With respect to each Purchased Asset, Buyer and its Affiliates shall (i) immediately upon Transfer of such Purchased Assets cease all use of any of the Seller Names and Seller Marks on or in connection with all stationery, business cards, purchase orders, warranties, indemnifications, invoices and other similar correspondence and other documents of a contractual nature, (ii) promptly, and in any event no later than thirty (30) days after the applicable Transfer Effective Time, complete the removal of the Seller Names and any Seller Marks from all products, services and technical information promotional brochures and (iii) with respect to Purchased Assets bearing any Seller Names and Seller Marks, use their commercially reasonable efforts to relabel such Purchased Assets or remove such Seller Names and Seller Marks from such Purchased Assets as promptly as practicable, and in any event no later than thirty (30) days after the applicable Transfer Effective Time.

(c) Buyer, for itself and its Affiliates, agrees that, from and after the Effective Date, Buyer and its Affiliates (i) will not expressly, or by implication, do business as or represent themselves as any Seller Party or its Affiliates, (ii) with respect to each Purchased Asset after the applicable Transfer Effective Time, will represent in writing to the counterparties to the Assigned Contracts and others that such assets are those of Buyer and its Affiliates and not those of any Seller Party or its Affiliates and (iii) will use reasonable efforts to cooperate with the Seller Parties and their respective Affiliates, at the cost and expense of the Seller Parties or such Affiliates, in terminating any contracts pursuant to which any Seller Party licenses any Seller Names and Seller Marks to counterparties.

(d) Buyer, for itself and its Affiliates, acknowledges and agrees that, except to the extent expressly provided in this Section 6.04 , neither Buyer nor any of its Affiliates shall have any rights in any of the Seller Names and Seller Marks and neither Buyer nor any of its Affiliates shall contest the ownership or validity of any rights of Seller or any of its Affiliates in or to any of the Seller Names and Seller Marks.

Section 6.05. Preservation of Books and Records .

(a) Buyer shall use reasonable efforts to maintain separate books and records relating to the Purchased Assets and the Assumed Liabilities (including with respect to any Assigned Contracts that are customer contracts), separate from the books and records of Buyer’s and its Affiliates’ other businesses or contracts.

(b) The Seller Parties and their respective Affiliates shall have the right to retain copies of all books and records relating to the Purchased Assets and the Assumed Liabilities and relating to periods ending on or before the applicable Transfer Effective Time. Buyer agrees that it shall preserve and keep all original books and records in respect of the Purchased Assets and the Assumed Liabilities in the possession or control of Buyer or its

Affiliates for at least the longer of (i) the expiration of any applicable statute of limitations and (ii) a period of six (6) years from each applicable Transfer Effective Time.

(c) During such six (6)-year or longer period, (i) Representatives of the Seller Parties and their respective Affiliates shall, upon reasonable notice and for any reasonable business purpose, have reasonable access during normal business hours to examine, inspect and copy such original books and records, in each case at the sole cost and expense of the Seller Parties or such Affiliates and (ii) Buyer shall provide to the Seller Parties and their respective Affiliates, at Buyer’s offices where such books and records are maintained, reasonable access to such original books and records relating to the Purchased Assets and the Assumed Liabilities as the Seller Parties and their respective Affiliates shall reasonably request in connection with any Action to which the Seller Parties and their respective Affiliates are parties or in connection with the requirements of any Law applicable to Seller or any of its Affiliates.

(d) After such six (6)-year or longer period, before Buyer or any of its Affiliates shall dispose of any of such original books and records, Buyer shall give at least ninety (90) days’ prior written notice of such intention to dispose to the Seller Parties, and the Seller Parties and their respective Affiliates shall be given an opportunity, at their cost and expense, to remove and retain all or any part of such original books and records as it may elect.

Section 6.06. Further Assurances. Upon the terms and subject to the conditions set forth in this Agreement, each of the Parties agrees to use commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other Parties in doing, all things necessary to consummate and make effective, in the most expeditious manner practicable, the Transactions, including using commercially reasonable efforts (a) to defend any Actions, whether judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated hereby, including seeking to have any stay or temporary restraining order entered by any court or other Government Authority vacated or reversed; and (b) to execute, acknowledge and/or deliver such other instruments as may be reasonably necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement; provided , however , that except for Buyer’s obligations to discharge an Assumed Liability or the Seller Parties’ obligations to discharge an Excluded Liability or as set forth in Section 6.03 , nothing in this Section 6.06 shall require either Party or its Affiliates to pay money to, commence or participate in any Action with respect to, or offer or grant any accommodation (financial or otherwise) to, any third party.

Section 6.07. Non-Solicitation .

(a) Except as otherwise set forth on Section 6.07 of the Disclosure Letter, for a period of two (2) years commencing on the Effective Date (collectively, the “ Restricted Period ”), each Party shall not, and shall not permit any of their respective Affiliates to, directly or indirectly, hire or solicit any person who is or was employed by the other Party during the Restricted Period, or encourage any such employee to leave such employment or hire any such employee who has left such employment, except pursuant to a general solicitation which is not directed specifically to any such employees; provided that nothing in this Section 6.07(a) shall prevent any Party or any of its respective Affiliates from hiring (i) any employee whose employment has been terminated by the other Party or (ii) after one-hundred and eighty (180)

days from the date of termination of employment, any employee whose employment has been terminated by the employee.

(b) Each Party acknowledges that a breach or threatened breach of this Section 6.07 would give rise to irreparable harm to the other Party, for which monetary damages would not be an adequate remedy, and hereby agrees that in the event of a breach or a threatened breach by a Party of any such obligations, the other Party shall, in addition to any and all other rights and remedies that may be available to it in respect of such breach, be entitled to equitable relief, including a temporary restraining order, an injunction, specific performance and any other relief that may be available from a court of competent jurisdiction (without any requirement to post bond or other security).

(c) Each Party acknowledges that the restrictions contained in this Section 6.07 are reasonable and necessary to protect the legitimate interests of the other Party and constitute a material inducement to such other Party to enter into this Agreement and consummate the transactions contemplated by this Agreement. In the event that any covenant contained in this Section 6.07 should ever be adjudicated to exceed the time, geographic, product or service or other limitations permitted by applicable Law in any jurisdiction, then any court is expressly empowered to reform such covenant, and such covenant shall be deemed reformed, in such jurisdiction to the maximum time, geographic, product or service or other limitations permitted by applicable Law. The covenants contained in this Section 6.07 and each provision hereof are severable and distinct covenants and provisions. The invalidity or unenforceability of any such covenant or provision as written shall not invalidate or render unenforceable the remaining covenants or provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such covenant or provision in any other jurisdiction.

ARTICLE VII

TAX MATTERS

Section 7.01. Transfer Taxes . Notwithstanding anything to the contrary in this Agreement, Buyer on the one hand and the Seller Parties on the other hand shall each be 50% liable for and shall indemnify, defend and hold harmless the other from and against their 50% share of Transfer Taxes imposed or arising with respect to the Transactions. The Party required by Law to file a Tax Return with respect to such Transfer Taxes shall timely prepare, with the other Party’s cooperation, and file such Tax Return. If the Seller Parties or any of their respective Affiliates files any such Tax Return, Buyer shall promptly reimburse the Seller Parties for Buyer’s share of any Transfer Taxes paid by the Seller Parties or such Affiliate in connection with the filing of such Tax Return, and if Buyer or any of its Affiliates files any such Tax Return, the Seller Parties shall promptly reimburse Buyer for the Seller Parties’ share of any Transfer Taxes paid by Buyer or such Affiliate in connection with the filing of such Tax Return. Buyer and the Seller Parties each agrees to timely sign and deliver (or to cause to be timely signed and delivered) such certificates or forms as may be necessary or appropriate and otherwise to cooperate to establish any available exemption from (or otherwise reduce) such Transfer Taxes.

Section 7.02. Tax Cooperation . Without limiting the obligations set forth in Sections 6.01 and 6.05 , the Parties shall furnish or cause to be furnished to each other, upon

request, as promptly as practicable, such information and assistance relating to the Purchased Assets (including access to books and records) as is reasonably necessary for the filing of all Tax Returns, the making of any election related to Taxes, the preparation for any audit by any Taxing Authority, and the prosecution or defense of any audit, proposed adjustment or deficiency, assessment, claim, suit or other Action relating to any Taxes or Tax Return. The Parties shall cooperate with each other in the conduct of any audit or other proceeding related to Taxes and all other Tax matters relating to the Purchased Assets and each shall execute and deliver such powers of attorney and other documents as are necessary to carry out the intent of this Article VII . Buyer agrees that it shall preserve and keep, or cause to be preserved and kept, all original books and records in respect of the Purchased Assets relating to any Taxes with respect to Taxable years or periods (in whole or in part) ending on or before the applicable Transfer Effective Time and in the possession of Buyer or its Affiliates in accordance with Section 6.05 . Each Party shall, upon request, use its commercially reasonable efforts to obtain any certificate or other document from any Tax Authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed.

Section 7.03. Allocation of Taxes .

(a) Each Seller Party shall be liable for: (a) all Transfer Taxes allocable to the Seller Party pursuant to Section 7.01 , (b) any and all Taxes imposed on or with respect to the Excluded Assets, (c) any and all Taxes imposed on or with respect to the ownership or operation of the Purchased Assets for any Tax period ending on or before the applicable Transfer Effective Time or, with respect to any Tax period that includes (but does not end on) the applicable Transfer Effective Time, the portion of such Tax period ending on the applicable Transfer Effective Time (which shall be prorated based on the respective number of days in each period except that in the case of Taxes based on net or gross income, or transactional Taxes such as sales Taxes, such Taxes shall be allocated to the portion of the Tax period in which the transaction giving rise to such Taxes occurred), and (d) any and all Taxes imposed on Buyer as successor or transferee from the Seller Parties with respect to the ownership of the Purchased Assets (collectively, the “ Seller Taxes ”).

(b) Buyer shall be liable for (a) any and all Taxes imposed on or with respect to the ownership or operation of the Purchased Assets for any Tax period beginning on or after the applicable Transfer Effective Time or, with respect to any Tax period that includes (but does not end on) the applicable Transfer Effective Time, the portion of such Tax period beginning on the applicable Transfer Effective Time (which shall be prorated based on the respective number of days in each period except that in the case of Taxes based on net or gross income, or transactional Taxes such as sales Taxes, such Taxes shall be allocated to the portion of the Tax period in which the transaction giving rise to such Taxes occurred), and (b) all Transfer Taxes allocable to Buyer pursuant to Section 7.01 (collectively, the “ Buyer Taxes ”).

ARTICLE VIII

INDEMNIFICATION

Section 8.01. Survival . The representations and warranties (other than Seller Fundamental Representations and Buyer Fundamental Representations) set forth in this

Agreement shall survive for a period of twelve (12) months following the Effective Date, and the covenants and agreements set forth in this Agreement shall survive until fully performed and claims for breach related thereto shall survive until the expiration of the applicable statute of limitations. Seller Fundamental Representations and Buyer Fundamental Representations shall survive for a period of two (2) years after the Effective Date. No claim for indemnification under this Article VIII shall be brought by any Party after the expiration of the applicable survival period set forth in this Section 8.01 .

Section 8.02. Indemnification by QTS TRS .

(a) Subject to the terms of this Agreement, QTS TRS shall indemnify and hold harmless Buyer and its Affiliates (collectively, the “ Buyer Indemnified Parties ”) against, and reimburse any Buyer Indemnified Party for, all Losses suffered or incurred by such Buyer Indemnified Party in connection with or as a result of (i) any breach or failure by the Seller Parties to perform any of their respective covenants or agreements contained in this Agreement, (ii) any Excluded Liability, (iii) all Seller Taxes, or (iv) any Liability of any Buyer Indemnified Party under an Assigned Contract arising in connection with QTS TRS’s provision of the Transition Services (as defined in the Transition Services Agreement), except to the extent caused by Buyer’s willful misconduct or negligence; provided that the indemnification obligation of QTS TRS under the foregoing clause (iv) shall survive until the expiration of the applicable statute of limitations and shall in no event exceed the amount paid by Buyer to QTS TRS for such temporary transition services in respect of the applicable Assigned Contract; provided further , that QTS TRS shall have no indemnification obligation with respect to the foregoing cause (ii) to the extent, but only to the extent, Losses arising therefrom are attributable to Buyer’s actions or failure to act, to the extent Buyer had knowledge or reasonably should have had knowledge and failed to reasonably mitigate Losses, following the applicable Transfer Effective Time.

(b) Subject to the terms of this Agreement, QTS TRS shall indemnify and hold harmless the Buyer Indemnified Parties against, and reimburse any Buyer Indemnified Party for, all Losses (excluding any special, indirect or punitive damages, lost profits, loss of business reputation or opportunity or similar items) suffered or incurred by such Buyer Indemnified Party in connection with or as a result of any breach of or with respect to any representation or warranty of the Seller Parties contained in or made pursuant to Article IV of this Agreement or in any certificate delivered by the Seller Parties in connection with any Transfer; provided that, (A) QTS TRS shall have no obligation to indemnify, hold harmless or reimburse any Buyer Indemnified Party under this Section 8.02(b) until the aggregate amount of such Losses exceeds $50,000.00, after which QTS TRS shall only be obligated for such aggregate Losses of Buyer Indemnified Parties in excess of such amount, other than in the case of a breach of any Seller Fundamental Representation or in the case of fraud; (B) the cumulative indemnification obligation of QTS TRS under this Section 8.02(b) shall in no event exceed $1,000,000.00, other than in the case of a breach of any Seller Fundamental Representation or in the case of fraud; and (C) the indemnification provisions of this Section 8.02(b) shall be the sole and exclusive remedies of any Buyer Indemnified Party for any Losses (including any Losses from claims for breach of contract, warranty, tortious conduct, negligence or otherwise and whether predicated on common law, statute, strict liability, or otherwise) that it may at any time suffer or incur, or become subject to, in connection with or as a result of any breach of any

representation or warranty set forth in this Agreement by the Seller Parties, except in the case of fraud.

Section 8.03. Indemnification by Buyer .

(a) Subject to the terms of this Agreement, Buyer shall indemnify and hold harmless each of the Seller Parties and their respective Affiliates (collectively, the “ Seller Indemnified Parties ”) against, and reimburse any Seller Indemnified Party for, all Losses suffered or incurred by such Seller Indemnified Party as a result of: (i) any breach or failure by Buyer to perform any of its covenants or agreements contained in this Agreement; (ii) any Assumed Liability; or (iii) all Buyer Taxes.

(b) Subject to the terms of this Agreement, Buyer shall indemnify and hold harmless the Seller Indemnified Parties against, and reimburse any Seller Indemnified Party for, all Losses (excluding any special, indirect or punitive damages, lost profits, loss of business reputation or opportunity or similar items) suffered or incurred by such Seller Indemnified Party in connection with or as a result of any breach of or with respect to any representation or warranty of Buyer contained in or made pursuant to this Agreement or in any certificate delivered by Buyer in connection with any Transfer; provided that (A) Buyer shall have no obligation to indemnify, hold harmless or reimburse any Seller Indemnified Party under this Section 8.03(b) until the aggregate amount of such Losses exceeds $50,000.00, after which Buyer shall only be obligated for such aggregate Losses of Seller Indemnified Parties in excess of such amount, other than in the case of a breach of any Seller Fundamental Representation or in the case of fraud; (B) the cumulative indemnification obligation of Buyer under this Section 8.03(b) shall in no event exceed $1,000,000.00, other than in the case of a breach of any Seller Fundamental Representation or in the case of fraud; and (C) the indemnification provisions of this Section 8.03(b) shall be the sole and exclusive remedies of any Seller Indemnified Party for any Losses (including any Losses from claims for breach of contract, warranty, tortious conduct, negligence or otherwise and whether predicated on common law, statute, strict liability, or otherwise) that it may at any time suffer or incur, or become subject to, in connection with or as a result of any breach of or with respect to any representation or warranty set forth in this Agreement by Buyer, except in the case of fraud.

Section 8.04. Notification of Claims .

(a) Except as otherwise provided in this Agreement, a Person that may be entitled to be indemnified under this Agreement (the “ Indemnified Party ”), shall promptly notify the Party liable for such indemnification (the “ Indemnifying Party ”) in writing of any pending or threatened claim, demand or circumstance that the Indemnified Party has determined has given or would reasonably be expected to give rise to a right of indemnification under this Agreement (including a pending or threatened claim or demand asserted by a third party against the Indemnified Party, such claim being a “ Third Party Claim ”), describing in reasonable detail the facts and circumstances with respect to the subject matter of such claim, demand or circumstance; provided , however , that the failure to provide such notice shall not release the Indemnifying Party from any of its obligations under this Article VIII except to the extent the Indemnifying Party is materially prejudiced by such failure, it being understood that notices for claims in respect of a breach of a representation or warranty must be delivered before the

expiration of any applicable survival period specified in Section 8.01 for such representation or warranty.

(b) Upon receipt of a notice of a claim for indemnity from an Indemnified Party pursuant to Section 8.04(a) with respect to any Third Party Claim, the Indemnifying Party shall have the right (but not the obligation) to assume the defense and control of any Third Party Claim and, in the event that the Indemnifying Party shall assume the defense of such claim, it shall allow the Indemnified Party a reasonable opportunity to participate in the defense of such Third Party Claim with its own counsel and at its own expense. The Person that shall control the defense of any such Third Party Claim (the “ Controlling Party ”) shall select counsel, contractors and consultants of recognized standing and competence after consultation with the other Party and shall take all steps reasonably necessary in the defense or settlement of such Third Party Claim.

(c) QTS TRS or Buyer, as the case may be, shall, and shall cause each of its Affiliates and Representatives to, cooperate fully with the Controlling Party in the defense of any Third Party Claim. The Indemnifying Party shall be authorized to consent to a settlement of, or the entry of any judgment arising from, any Third Party Claim, without the consent of any Indemnified Party; provided that the Indemnifying Party shall (i) pay all amounts arising out of such settlement or judgment concurrently with the effectiveness of such settlement and (ii) obtain, as a condition of any settlement or other resolution, a complete release of any Indemnified Party potentially affected by such Third Party Claim.

ARTICLE IX

MISCELLANEOUS

Section 9.01. Rules of Construction . The following rules of construction shall govern the interpretation of this Agreement:

(a) references to “ applicable ” Law or Laws with respect to a particular Person, thing or matter means only such Law or Laws as to which the Government Authority that enacted or promulgated such Law or Laws has jurisdiction over such Person, thing or matter as determined under the Laws of the State of Delaware as required to be applied thereunder by a court sitting in the State of Delaware; references to any statute, rule, regulation or form (including in the definition thereof) shall be deemed to include references to such statute, rule, regulation or form as amended, modified, supplemented or replaced from time to time (and, in the case of any statute, include any rules and regulations promulgated under such statute), and all references to any section of any statute, rule, regulation or form include any successor to such section;

(b) when calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is referenced in beginning the calculation of such period will be excluded (for example, if an action is to be taken within two (2) days after a triggering event and such event occurs on a Tuesday , then the action must be taken by Thursday ); if the last day of such period is a non-Business Day, the period in question will end on the next succeeding Business Day;

(c) whenever the context requires, words in the singular shall be held to include the plural and vice versa, and words of one gender shall be held to include the other gender as the context requires;

(d) (i) the provision of a table of contents, the division into Articles, Sections and other subdivisions and the insertion of headings are for convenience of reference only and shall not affect or be utilized in construing or interpreting this Agreement and (ii) references to the terms “Article,” “Section,” “subsection,” “subclause,” “clause,” “ Schedule ” and “ Exhibit ” are references to the Articles, Sections, subsections, subclauses and clauses of, and Schedules and Exhibits to, this Agreement unless otherwise specified;

(e) (i) the terms “ hereof, ” “ herein, ” “ hereby, ” “ hereto, ” and derivative or similar words refer to this entire Agreement, including the Schedules and Exhibits hereto, (ii) the terms “ include, ” “ includes, ” “ including ” and words of similar import when used in this Agreement mean “including, without limitation” unless otherwise specified, (iii) the term “ any ” means “any and all” and (iv) the term “ or ” shall not be exclusive and shall mean “and/or” unless the context otherwise requires;

(f) (i) references to “ days ” means calendar days unless Business Days are expressly specified, (ii) references to “written” or “in writing” include in electronic form and (iii) references to “ $ ” means U.S. dollars;

(g) references to any Person includes such Person’s successors and permitted assigns;

(h) whenever this Agreement requires any Seller Party to take any action, such requirement shall be deemed to involve an undertaking on the part of QTS TRS to take such action or to cause such Seller Party to take such action; provided that the foregoing shall not relieve any Seller Party from any liability for failure to take such action; and

(i) each Party has participated in the negotiation and drafting of this Agreement and if an ambiguity or question of interpretation should arise, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or burdening either Party by virtue of the authorship of any provision in this Agreement; the language used herein will be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction will be applied against either Party . Further, prior drafts of this Agreement or any ancillary agreements hereto or the fact that any clauses have been added, deleted or otherwise modified from any prior drafts of this Agreement or any ancillary agreements hereto shall not be used as an aide of construction or otherwise constitute evidence of the intent of the Parties; and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of such prior drafts.

Section 9.02. Expenses . Except as otherwise specified in the Transaction Documents, each Party will pay its own costs and expenses, including legal, consulting, financial advisor and accounting fees and expenses, incurred in connection with the Transaction Documents and the Transactions, irrespective of when incurred.

Section 9.03. Notices . All notices and other communications under or by reason of this Agreement shall be in writing and shall be deemed to have been duly given or made (a) when personally delivered, (b) when delivered by facsimile or e-mail transmission with receipt confirmed (followed by delivery of an original by another delivery method provided for in this Section 9.03 ) if delivered during business hours of the recipient, otherwise on the next Business Day or (c) one (1) Business Day after deposit with overnight courier service, in each case to the addresses, facsimile numbers or e-mail addresses and attention parties indicated below (or such other address, facsimile number, e-mail address or attention party as the recipient party has specified by prior notice given to the sending party in accordance with this Section 9.03 ):


If to any Seller Party, to:	c/o QTS Realty Trust, Inc. 12851 Foster Street Overland Park, KS 66213 Attention: Legal Department Facsimile: 877-772-5290 E-mail: legal@qtsdatacenters.com

with a copy (which will not constitute notice) to:	Hogan Lovells US LLP 555 Thirteenth Street, NW Washington, DC 20004 Attention: Matt Thomson Facsimile: 202-637-5910 E-mail: matt.thomson@hoganlovells.com

If to Buyer, to:	General Datatech, L.P. 999 Metro Media Place Dallas, Texas 75247 Attention: GDT Legal Department E-mail: legal@gdt.com

with a copy (which will not constitute notice) to:	Wick Phillips Gould & Martin, LLP 3131 McKinney Ave., Suite 100 Dallas, TX 75204 Attention: Rob Schroeder Facsimile: 214-692-6255 E-mail: rob.schroeder@wickphillips.com

Section 9.04. Public Announcements . No Party or any of its Affiliates or Representatives shall issue or cause the publication of any press release or public announcement or otherwise communicate with any news media in respect of the Transaction Documents or the Transactions without the prior written consent of the other Parties, which consent shall not be unreasonably withheld, (x) unless required by Law (including SEC rules and regulations) or Governmental Authority or in connection with public earnings announcements in the ordinary course and (y) except for initial press releases or other written communications announcing the Transactions that are shared with the other Parties as reasonably in advance as is practicable with

such other Parties having an opportunity to review and comment on any such press release or other written communication.

Section 9.05. Severability . If any term or provision of this Agreement is held invalid, illegal or unenforceable in any respect under any applicable Law, as a matter of public policy or on any other grounds, the validity, legality and enforceability of all other terms and provisions of this Agreement will not in any way be affected or impaired. If the final judgment of a court of competent jurisdiction or other Government Authority declares that any term or provision hereof is invalid, illegal or unenforceable, the Parties hereto shall negotiate in good faith to modify this Agreement to effect the original intent of the Parties as closely as possible in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible, including to reduce the scope, duration, area or applicability of the term or provision, to delete specific words or phrases, or to replace any invalid, illegal or unenforceable term or provision with a term or provision that is valid, legal and enforceable; provided that if no such agreement shall be reached among the Parties, the Parties agree that the court shall have such power to modify this Agreement to effect the original intent of the Parties as closely as possible in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

Section 9.06. Assignment . This Agreement will be binding upon and inure to the benefit of and be enforceable by the respective successors and permitted assigns of the Parties. Neither Party may assign (whether by operation of Law or otherwise) this Agreement or any rights, interests or obligations provided by this Agreement without the prior written consent of the other Party; provided , however , that notwithstanding the foregoing, the Seller Parties may assign this Agreement or any or all of their respective rights and obligations hereunder to any Person that at the time of such assignment is a QTS Permitted Assignee and that expressly assumes all of the obligations of such Seller Party hereunder, in which case upon any such permitted assignment by such Seller Party the references in this Agreement to such Seller Party shall apply to such assignee unless the context otherwise requires. Any attempted assignment in violation of this Section 9.06 shall be void ab initio .

Section 9.07. No Third-Party Beneficiaries . Except as set forth in Article VIII , this Agreement and the other Transaction Documents are for the sole benefit of the Parties and their respective successors and permitted assigns, and, except as expressly set forth in the applicable Transaction Document, nothing in the Transaction Documents shall create or be deemed to create any third-party beneficiary rights in any Person not a party to the Transaction Documents, including any Affiliates of any Party.

Section 9.08. Entire Agreement . This Agreement (including the Exhibits and the Disclosure Letter) and the other Transaction Documents (and all exhibits and schedules hereto and thereto) collectively constitute and contain the entire agreement and understanding of the Parties with respect to the subject matter hereof and thereof and supersede all prior negotiations, correspondence, understandings, agreements and contracts, whether written or oral, between the Parties respecting the subject matter hereof and thereof.

Section 9.09. Amendments . The Transaction Documents (including all exhibits and schedules thereto) may be amended, restated, supplemented or otherwise modified, only by

written agreement making specific reference to the applicable Transaction Document to be amended, restated, supplemented or otherwise modified, in each case duly executed by each party to such Transaction Document.

Section 9.10. Waiver . Either a Seller Party or Buyer may (a) extend the time for the performance of any obligation or other acts of the other Party, (b) waive any breaches or inaccuracies in the representations and warranties of the other Party contained in this Agreement or in any document delivered pursuant to this Agreement or (c) waive compliance with any covenant, agreement or condition contained in this Agreement but such waiver of compliance with any such covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure; provided that any such waiver shall be in a written instrument duly executed by the waiving Party. No failure on the part of either Party to exercise, and no delay in exercising, any right, power or remedy under any Transaction Document shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by such Party preclude any other or further exercise thereof or the exercise of any other right, power or remedy.

Section 9.11. Governing Law . The Transaction Documents, and any Action that may be based upon, arise out of or relate or be incidental to any Transaction, any Transaction Document, the negotiation, execution, performance or consummation of any of the foregoing or the inducement of any Party to enter into any of the foregoing, whether for breach of contract, tortious conduct or otherwise, and whether now existing or hereafter arising (each, a “ Transaction Dispute ”), will be exclusively governed by and construed and enforced in accordance with the internal Laws of the State of Delaware, without giving effect to any Law or rule that would cause the Laws of any jurisdiction other than the State of Delaware to be applied.

Section 9.12. Dispute Resolution; Consent to Jurisdiction .

(a) Except as otherwise provided in the Channel Agreement, any Transaction Dispute will exclusively be brought and resolved in the U.S. District Court for the District of Delaware (where federal jurisdiction exists) or the commercial division of the courts of the State of Delaware (where federal jurisdiction does not exist), and the appellate courts having jurisdiction of appeals in such courts. In that context, and without limiting the generality of the foregoing, each Party irrevocably and unconditionally:

(i) submits for itself and its property to the exclusive jurisdiction of such courts with respect to any Transaction Dispute and for recognition and enforcement of any judgment in respect thereof, and agrees that all claims in respect of any Transaction Dispute shall be heard and determined in such courts;

(ii) agrees that venue would be proper in such courts, and waives any objection that it may now or hereafter have that any such court is an improper or inconvenient forum for the resolution of any Transaction Dispute; and

(iii) agrees that the mailing by certified or registered mail, return receipt requested, to the Persons listed in Section 9.03 of any process required by any such court, will be effective service of process; provided , however , that nothing herein will be deemed to

prevent a Party from making service of process by any means authorized by the Laws of the State of Delaware.

(b) The foregoing consent to jurisdiction will not constitute submission to jurisdiction or general consent to service of process in the State of Delaware for any purpose except with respect to any Transaction Dispute.

Section 9.13. Waiver of Jury Trial . To the maximum extent permitted by Law, each Party irrevocably and unconditionally waives any right to trial by jury in any forum in respect of any Transaction Dispute and covenants that neither it nor any of its Affiliates or Representatives will assert (whether as plaintiff, defendant or otherwise) any right to such trial by jury. Each Party certifies and acknowledges that (a) such Party has considered the implications of this waiver, (b) such Party makes this waiver voluntarily and (c) such waiver constitutes a material inducement upon which the other Party is relying and will rely in entering into the Transaction Documents. Each Party may file an original counterpart or a copy of this Section 9.13 with any court as written evidence of the consent of each Party to the waiver of its right to trial by jury.

Section 9.14. Admissibility into Evidence . All offers of compromise or settlement among the Parties or their Representatives in connection with the attempted resolution of any Transaction Dispute (a) shall be deemed to have been delivered in furtherance of a Transaction Dispute settlement, (b) shall be exempt from discovery and production and (c) shall not be admissible into evidence (whether as an admission or otherwise) in any proceeding for the resolution of the Transaction Dispute.

Section 9.15. Remedies; Specific Performance .

(a) Except to the extent set forth otherwise in this Agreement (including in Sections 8.02(a) , 8.02(b) and 8.03(b) ), all remedies under this Agreement expressly conferred upon a Party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by Law or equity upon such Party, and the exercise by a Party of any one remedy will not preclude the exercise of any other remedy.

(b) Each Party agrees that irreparable damage would occur and the Parties would not have an adequate remedy at law if any provision of this Agreement is not performed in accordance with its specific terms or is otherwise breached. Accordingly, each Party agrees that the other Parties will be entitled to injunctive relief from time to time to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions of this Agreement, in each case (i) without the requirement of posting any bond or other indemnity and (ii) in addition to any other remedy to which it may be entitled, at law or in equity. Furthermore, each Party agrees not to raise any objections to the availability of the equitable remedy of specific performance to prevent or restrain breaches of this Agreement, and to specifically enforce the terms of this Agreement to prevent breaches or threatened breaches of, or to enforce compliance with, the covenants and obligations of such Party under this Agreement. Each Party expressly disclaims that it is owed any duty not expressly set forth in this Agreement, and waives and releases all tort claims and tort causes of action that may be based upon, arise out of or relate to this Agreement, or the negotiation, execution or performance of this Agreement.

Section 9.16. Non-Recourse . All claims, obligations, liabilities, or causes of action (whether in contract or in tort, in law or in equity, or granted by statute) with respect to the Parties that may be based upon, in respect of, arise under, out or by reason of, be connected with, or relate in any manner to the Transaction Documents, or the negotiation, execution, or performance of the Transaction Documents (including any representation or warranty made in, in connection with, or as an inducement to, the Transaction Documents), may be made only against (and are expressly limited to) the entities that are expressly identified as the Parties in the preamble to this Agreement or their respective Affiliates expressly identified as parties to the other Transaction Documents, as applicable. No Person who is not a Party, including any past, present or future incorporator, member, partner (including general and limited partners), manager, stockholder, Affiliate or Representative of, and any financial advisor or lender to, any Party, or any incorporator, member, partner (including general and limited partners), manager, stockholder, Affiliate or Representative of, and any financial advisor or lender to, any of the foregoing shall have any liability (whether in contract or in tort, in law or in equity, or granted by statute) for any claims, causes of action, obligations, or liabilities with respect to the Parties arising under, out of, in connection with, or related in any manner to the Transaction Documents or based on, in respect of, or by reason of the Transaction Documents or their negotiation, execution, performance, or breach.

Section 9.17. Interest . If any payment required to be made to a Party under this Agreement is made after the date on which such payment is due, interest shall accrue on such amount from (but not including) the due date of the payment to (and including) the date such payment is actually made at an interest rate of five percent (5%) per annum. All computations of interest pursuant to this Agreement shall be made on the basis of a year of three-hundred and sixty five (365) days, in each case for the actual number of days from (but not including) the first day to (and including) the last day occurring in the period for which such interest is payable.

Section 9.18. Disclosure Letter and Exhibits . Any capitalized terms used in any Exhibit attached to this Agreement or in the Disclosure Letter provided in connection with this Agreement, but not otherwise defined therein shall be defined as set forth in this Agreement. The representations and warranties of the Seller Parties set forth in this Agreement are made and given subject to the disclosures contained in the Disclosure Letter, and neither the Seller Parties nor any of their respective Affiliates shall be, or be deemed to be, in breach of any such representations and warranties (and no claim shall lie in respect thereof) in respect of any such matter so disclosed in the Disclosure Letter. Inclusion of information in the Disclosure Letter will not be construed as an admission that such information is material to the business, operations or condition (financial or otherwise) of the Purchased Assets or Assumed Liabilities or is required to be disclosed hereunder. The Disclosure Letter has been arranged for purposes of convenience in separately titled Sections corresponding to the Sections of this Agreement, however, each Section of the Disclosure Letter shall be deemed to incorporate by reference all information disclosed in any other Section of the Disclosure Letter to the extent it is reasonably apparent that the disclosure of such matter is applicable to such Section of the Disclosure Letter.

Section 9.19. Counterparts . Each Transaction Document may be executed and delivered in counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. Facsimiles, e-mail transmission of .pdf signatures

or other electronic copies of signatures shall be deemed to be originals.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;

SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, each of the Seller Parties and Buyer have caused this Agreement to be executed on the date first written above by their respective duly authorized officer.

	SELLER PARTIES:

	QUALITY TECHNOLOGY SERVICES HOLDING, LLC

	By	/s/ Chad L. Williams
	Name:	Chad L. Williams
	Title:	President and Chief Executive Officer

	QUALITYTECH, LP

	By	/s/ Chad L. Williams
	Name:	Chad L. Williams
	Title:	Chairman and Chief Executive Officer

	BUYER:

	GENERAL DATATECH, L.P.

	By	Gendata, L.L.C., its general partner

	By	/s/ John W. Roberts
	Name:	John W. Roberts
	Title:	President

[Signature Page to Transaction Agreement]

EXHIBIT A

DEFINITIONS

“ Action ” means any action, suit, arbitration, proceeding or investigation by or before any Government Authority.

“ Affiliate ” means, with respect to any specified Person, any other Person that, at the time of determination, directly or indirectly through one or more intermediaries, Controls, is Controlled by or is under common Control with such specified Person; provided , however , that for the purposes of this Agreement, the Seller Parties shall not be deemed Affiliates of Buyer.

“ Agreement ” means this Transaction Agreement, dated as of April 24, 2018, by and among the Seller Parties and Buyer, including the Exhibits attached hereto and the Disclosure Letter provided in connection herewith, and all amendments or supplements hereto in accordance with Section 9.09 .

“ Bankruptcy and Equity Exception ” means the effect on enforceability of (a) any applicable Law relating to bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance or preferential transfers, or similar Law relating to or affecting creditors’ rights generally and (b) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).

“ Business Day ” means any day that is not a Saturday, a Sunday or other day on which commercial banks in the City of New York, New York are required or authorized by Law to be closed.

“ Buyer Fundamental Representations ” means the representations and warranties made in Section 5.01 (Organization and Authority of Buyer; Enforceability) and Section 5.04 (Brokers).

“ Code ” means the U.S. Internal Revenue Code of 1986, as amended.

“ Confidentiality Agreement ” the means the Confidentiality Agreement, dated March 20, 2018, by and between Buyer and QTS Realty Trust, Inc., on behalf of themselves and their respective Affiliates, as the same may be amended from time to time in accordance with its terms.

“ Consent ” means any consent, approval or authorization.

“ Contract ”” means any legally binding written or oral contract, agreement or other undertaking.

“ Control ” means, as to any Person, the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. The terms “Controlled by,” “Controlled,” “under common Control with” and “Controlling” shall have correlative meanings.

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“ Disclosure Letter ” means the disclosure letter dated as of the Effective Date provided by the Seller Parties to Buyer in connection with this Agreement, and which forms a part of this Agreement.

“ Government Authority ” means any U.S. federal, state or local or any supra-national or non-U.S. government, political subdivision, governmental, regulatory or administrative authority, instrumentality, agency, body or commission, self-regulatory organization or any court, tribunal, or judicial or arbitral body.

“ Knowledge of QTS LP ” means the actual or constructive knowledge, after making reasonable inquiry, of the Persons set forth on Section A of the Disclosure Letter.

“ Law ” means any U.S. federal, state, local or non-U.S. statute, law, ordinance, regulation, rule, code, Order or other requirement or rule of law (including common law).

“ Liabilities ” means any liability, debt, guarantee, claim, demand, expense, commitment or obligation (whether direct or indirect, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, or due or to become due) of every kind and description, including all costs and expenses related thereto.

“ Lien ” means any mortgage, deed of trust, pledge, hypothecation, security interest, encumbrance, claim or other lien.

“ Losses ” means all losses, damages, costs, expenses, and liabilities actually suffered or incurred and paid (including reasonable attorneys’ fees).

“ Net AR/AP Amount ” means, with respect to an Assigned Contract and based on amounts as of the applicable Transfer Effective Time, the difference, which may be a positive or negative amount, of (x) the amount of any outstanding accounts receivable and notes receivable thereunder, minus (y) the amount of any outstanding accounts payable or notes payable thereunder. For the avoidance of doubt, a positive Net AR/AP Amount shall be treated as a credit in favor of QTS TRS and a negative Net AR/AP Amount shall be treated as a credit in favor of Buyer for purposes of calculating any cash payment under Section 2.03(a) .

“ Order ” means any order, writ, judgment, injunction, temporary restraining order, decree, stipulation, determination or award entered by or with any Government Authority.

“ Permits ” means all permits, approvals, authorizations, licenses, Consents, registrations, concessions, grants, franchises, certificates, identification numbers exemptions, waivers, and filings issued or required by any Government Authority under applicable Law.

“ Permitted Liens ” means the following Liens:

(a) Liens for Taxes, assessments or other governmental charges or levies that are not yet due or payable or that are being contested in good faith by appropriate proceedings;

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(b) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen, workmen, repairmen and other Liens imposed by Law and on a basis consistent with past practice;

(d) Liens arising out of, under or in connection with this Agreement or the other Transaction Documents.

“ Person ” means any natural person, general or limited partnership, corporation, company, trust, limited liability company, limited liability partnership, firm, association or organization or other legal entity.

“QTS Permitted Assignee ” means a Person that is either: (i) QTS Realty Trust, Inc. or (ii) a direct or indirect subsidiary of QTS Realty Trust, Inc.

“ Records ” means all books, records, ledgers and files or other similar information of the Seller Parties (in any form or medium) exclusively related to, used or held for use in connection with the Purchased Assets, including all client lists, vendor and supplier lists, correspondence, mailing lists, revenue records, invoices (and any supporting documentation to such invoices), advertising materials, brochures, records of operation, standard forms of documents, manuals of operations or business procedures, photographs, blueprints, research files and materials, and data books .

“ Representative ” of a Person means the directors, officers, employees, advisors, agents, consultants, attorneys, accountants, investment bankers or other representatives of such Person.

“ Seller Fundamental Representations ” means the representations and warranties made in Section 4.01 (Organization and Authority of the Seller Parties; Enforceability) and Section 4.03 (Brokers).

“ Seller Intellectual Property ” means all Intellectual Property that is owned, licensed or used by any of the Seller Parties, including those internet protocol addresses allocated to or used by any Seller Party or any of its Affiliates.

“ Seller Names and Seller Marks ” means the names or marks of QTS Realty Trust, Inc., a Maryland corporation, Seller or any of their respective Affiliates, including names that use or contain “QTS” (in block letters or otherwise), the QTS monogram, “QTS Realty Trust” and “QualityTech” either alone or in combination with other words and all marks, trade dress, logos, monograms, domain names and other source identifiers confusingly similar to or embodying any of the foregoing either alone or in combination with other words.

“ Seller Technology ” means all Technology that is owned by any of the Seller Parties.

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“ Subsidiary ” of any specified Person means any other Person of which such first Person owns (either directly or through one or more other Subsidiaries) a majority of the outstanding equity securities or securities carrying a majority of the voting power in the election of the board of directors or other governing body of such Person, and with respect to which entity such first Person is not otherwise prohibited contractually or by other legally binding authority from exercising Control.

“ Tax ” or “ Taxes ” means all income, excise, gross receipts, ad valorem, value-added, sales, use, employment, franchise, profits, gains, property, transfer, use, payroll, intangibles or other taxes of any kind whatsoever (whether payable directly or by withholding), together with any interest and any penalties, additions to tax or additional amounts imposed by any Taxing Authority with respect thereto, and any Liability for the payment of any amounts of the type described in the foregoing clause as a result of being a transferee or successor to any person, as a result of any express or implied obligation to indemnify any other Person, by Contract, operation of law, Treasury Regulation section 1.1502-6(a) (or any predecessor or successor thereof or any analogous or similar provision under Law) or otherwise.

“ Tax Returns ” means all returns and reports (including elections, declarations, disclosures, schedules, estimates, claims for refunds and information returns) required to be supplied to a Taxing Authority relating to Taxes.

“ Taxing Authority ” means any U.S. federal, state or local or non-U.S. jurisdiction (including any subdivision and any revenue agency of a jurisdiction) imposing Taxes and the agencies, if any, charged with the collection of such Taxes for such jurisdiction.

“ Technology ” means, collectively, all technology, designs, procedures, discoveries, processes, techniques, ideas, know-how, research and development, technical data, tools, materials, specifications, processes, inventions (whether patentable or unpatentable and whether or not reduced to practice), apparatus, creations, improvements, works of authorship in any media, confidential, proprietary or non-public information, and other similar materials, and all recordings, graphs, drawings, reports, analyses and other writings, and other tangible embodiments of the foregoing in any form whether or not listed herein, and all related technology.

“ Transaction Documents ” means this Agreement, each Bill of Sale, Assignment and Assumption Agreement, the Channel Agreement, the Colocation Agreement and the Transition Services Agreement, in each case including all exhibits and schedules thereto and all amendments or supplements thereto made in accordance with the respective terms thereof, and any other documents, agreements, bills of sale, instruments, certificates or deliverables executed in connection therewith.

“ Transactions ” means the transactions contemplated by this Agreement and the other Transaction Documents.

“ Transfer Taxes ” means any sales Tax, use Tax, direct or indirect real property transfer or gains Tax, documentary stamp Tax, business and occupation Tax, value added Tax or similar Taxes and all related fees.

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Action	Exhibit A
Affiliate	Exhibit A
Agreement	Exhibit A
Assigned Contracts	Section 2.01(a)(i)
Assumed Liabilities	Section 2.01(c)
Bankruptcy and Equity Exception	Exhibit A
Bill of Sale, Assignment and Assumption Agreement	Section 2.03(b)
Business Day	Exhibit A
Buyer	Preamble
Buyer Fundamental Representations	Exhibit A
Buyer Indemnified Parties	Section 8.02
Buyer Taxes	Section 7.03(b)
Channel Agreement	Section 2.04(a)
Code	Exhibit A
Colocation Agreement	Section 2.04(b)
Confidentiality Agreement	Exhibit A
Consent	Exhibit A
Contract	Exhibit A
Control	Exhibit A
Controlling Party	Section 8.04(b)
Disclosure Letter	Exhibit A
Effective Date	Preamble
Excluded Assets	Section 2.01(b)
Excluded Liabilities	Section 2.01(d)
Government Authority	Exhibit A
Indemnified Party	Section 8.04(a)
Indemnifying Party	Section 8.04(a)
Knowledge of QTS LP	Exhibit A
Law	Exhibit A
Liabilities	Exhibit A
Lien	Exhibit A
Losses	Exhibit A
Net AR/AP Amount	Exhibit A
Order	Exhibit A
Participation Arrangement	Section 2.02(a)
Parties	Preamble
Permits	Exhibit A
Permitted Liens	Exhibit A
Person	Exhibit A
Purchased Assets	Section 2.01(a)
Purchased Tangible Personal Property	Section 2.01(a)(ii)
QTS LP	Preamble
QTS Permitted Assignee	Exhibit A
QTS TRS	Preamble
Representative	Exhibit A
Restricted Period	Section 6.07(a)

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Seller Fundamental Representations	Exhibit A
Seller Indemnified Parties	Section 8.03(a)
Seller Intellectual Property	Exhibit A
Seller Names and Seller Marks	Exhibit A
Seller Parties	Preamble
Seller Taxes	Section 7.03(a)
Seller Technology	Exhibit A
Sellers’ Bankers	Section 4.03
Subsidiary	Exhibit A
Tax	Exhibit A
Tax Returns	Exhibit A
Taxes	Exhibit A
Taxing Authority	Exhibit A
Technology	Exhibit A
Third Party Claim	Section 8.04(a)
Third Party Consents	Section 6.03
Top Customers	Section 4.06
Transaction Dispute	Section 9.11
Transaction Documents	Exhibit A
Transactions	Exhibit A
Transfer	Section 2.03
Transfer Effective Time	Section 2.03
Transfer Taxes	Exhibit A
Transferred Software and Licenses	Section 2.01(a)(iii)
Transition Services Agreement	Section 2.04(c)

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EXHIBIT B

FORM

BILL OF SALE, ASSIGNMENT AND ASSUMPTION AGREEMENT

[attached]

BILL OF SALE, ASSIGNMENT AND ASSUMPTION AGREEMENT

This Bill of Sale, Assignment and Assumption Agreement (this “ Agreement ”), dated as of the date indicated below, is made by and among the undersigned assignor(s) (each or collectively, the “ Assignor ”), and the undersigned assignee (each or collectively, the “ Assignee ”).

RECITALS:

A. Quality Technology Services Holding, LLC, a Delaware limited liability company (“ QTS TRS ”), and QualityTech, LP, a Delaware limited partnership and the sole member of QTS TRS (“ QTS LP ” and together with QTS TRS, the “ Seller Parties ”), on the one hand, and General Datatech, L.P., a Texas limited partnership (“ Buyer ”), on the other hand, entered into that certain Transaction Agreement, dated as of April 24, 2018 (the “ Transaction Agreement ”), pursuant to which the Seller Parties agreed to sell to Buyer, and Buyer agreed to purchase from the Seller Parties, certain Purchased Assets, and Buyer agreed to assume certain Assumed Liabilities from the Seller Parties, as set forth in the Transaction Agreement. Any capitalized terms used in this Agreement but not otherwise defined herein shall be defined as set forth in the Transaction Agreement.

B. The Assignor(s) and the Assignee desire to enter into this Agreement to effect certain transactions referred to in and contemplated by the Transaction Agreement.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, agree as follows:

ARTICLE I

TRANSFER OF ASSETS; ASSUMPTION OF LIABILITIES

Section 1.01. Transfer of Assets . Effective as of the Transfer Effective Time, the applicable Assignor hereby sells, conveys, assigns, transfers and delivers to the Assignee, and the Assignee hereby purchases, acquires and accepts from the applicable Assignor, all of such Assignor’s right, title and interest in, to and under each Purchased Asset set forth on Schedule A hereto , free and clear of all Liens other than Permitted Liens .

Section 1.02. Assumption of Liabilities . Effective as of the Transfer Effective Time, and on the terms and subject to the conditions set forth in the Transaction Agreement, the Assignee hereby assumes and agrees to timely pay, discharge and perform in accordance with their terms, the Assumed Liabilities related to the Purchased Assets and any other Assumed Liabilities set forth on Schedule A hereto. Assignee shall not assume or have any liability or obligation whatsoever for any Liability of the Assignor(s) other than the Assumed Liabilities.

ARTICLE II

MISCELLANEOUS

Section 2.01. Governing Law . This Agreement will be exclusively governed by and construed and enforced in accordance with the internal Laws of the State of Delaware, excluding conflict of laws rules.

Section 2.02. No Amendment or Modification to Transaction Agreement . Each of the Assignor and the Assignee hereby acknowledges and agrees that no representations or warranties of any Party under the Transaction Agreement shall be deemed to be enlarged, modified or altered in any way by this Agreement, and that the sole recourse for the breach of any representations, warranties, covenants and agreements relating to the Purchased Assets and Assumed Liabilities shall be as set forth in the Transaction Agreement. In the event of any inconsistency or conflict between the terms of this Agreement and the Transaction Agreement, the terms of the Transaction Agreement shall control.

* * * * *

IN WITNESS WHEREOF, the Parties have caused this Bill of Sale, Assignment and Assumption Agreement to be duly executed and delivered as of _______________________ (the “ Transfer Effective Time ”).

SCHEDULE A

TO BILL OF SALE ASSIGNMENT AND ASSUMPTION AGREEMENT

Purchased Asset(s):

Assumed Liabilities:

Exhibit 10.3

EXECUTION VERSION

CHANNEL AGREEMENT

THIS CHANNEL AGREEMENT (this “ Agreement ”) is made as of the 24th day of April, 2018 (the “ Effective Date ”), by and between Quality Technology Services Holding, LLC, a Delaware limited liability company (“ QTS TRS ”), and General Datatech, L.P., a Texas limited partnership (“ Buyer ” and together with QTS TRS, the “ Parties ”, or each, a “ Party ”).

RECITALS

A. The Parties have entered into that certain Transaction Agreement, dated as of even date herewith (the “ Transaction Agreement ”), by and among Buyer, on the one hand, and QTS TRS and QualityTech, LP, a Delaware limited partnership and the sole owner of QTS TRS (together with QTS TRS, the “ Seller Parties ”), on the other hand, pursuant to which the Seller Parties agreed to sell to Buyer, and Buyer agreed to purchase from the Seller Parties, certain Purchased Assets (including contracts, tangible personal property and other assets previously used in certain hybrid cloud, hosting and managed services by the Seller Parties), and Buyer agreed to assume certain Assumed Liabilities from the Seller Parties, as set forth in the Transaction Agreement. Any capitalized terms used in this Agreement but not otherwise defined herein shall be defined as set forth in the Transaction Agreement.

B. Pursuant to the Transaction Agreement and as partial consideration for the Purchased Assets thereunder, Buyer has agreed to pay a monthly “channel fee” to QTS TRS with respect to revenue under each Current Customer Contract, Replacement Customer Contract and New Customer Contract (each term, as defined below), on the terms and subject to the conditions set forth in this Agreement.

1. Monthly Channel Fees .

(a) During the term of this Agreement, Buyer shall pay to QTS TRS a monthly “channel fee” (collectively, the “ Channel Fees ”) equal to the aggregate amount of:

(i) prior to the “Cutoff-Date” (as defined in the Transition Services Agreement), twenty percent (20%) of the Recognized Revenue received and collected by Buyer or its Affiliates under (i) each Current Customer Contract during or with respect to the Current Term and any renewal term thereof, and (ii) each Replacement Customer Contract during or with respect to its initial term and any renewal term thereof, plus

(ii) after the Cutoff-Date, fifteen percent (15%) of the Recognized Revenue received and collected by Buyer or its Affiliates under (i) each Current Customer Contract during or with respect to the Current Term and any

renewal term thereof, and (ii) each Replacement Customer Contract during or with respect to its initial term and any renewal term thereof, plus

(iii) eighteen percent (18%) of the Recognized Revenue received and collected by Buyer or its Affiliates under each New Customer Contract during or with respect to its initial term and any renewal term thereof, less

(iv) the aggregate Third Party Channel Credit.

Buyer shall pay to QTS TRS the aggregate Channel Fee due with respect to each calendar month no later than thirty (30) days following the end of such month (or the next succeeding business day, if later) (a “ Payment Date ”). Buyer’s payment on each Payment Date shall be accompanied by a written statement in a form reasonably agreed by the Parties (the “ Calculation Statement ”) setting forth in reasonable detail Buyer’s determination of Recognized Revenue and the resulting Channel Fee with respect to each Current Customer Contract, Replacement Customer Contract and New Customer Contract for such calendar month (the “ Channel Fee Calculation ”).

(b) In the event that (i) any Current Customer Contract is terminated prior to the expiration of its Current Term (or any Replacement Customer Contract is terminated prior to the expiration of its initial term) either (x) by the applicable customer for Buyer’s failure to perform thereunder or (y) by Buyer without cause, and (ii) Buyer does not enter into a Replacement Customer Contract with the same customer, Buyer shall remain obligated to pay to QTS TRS the Channel Fees based on the Recognized Revenue required under the terms of such Current Customer Contract (or Replacement Customer Contract) for the period of time between (x) the date of its termination and (y) the date on which such Current Term (or initial term) would have naturally expired.

(c) All payments under this Agreement shall be paid by wire transfer of immediately available funds to the account or accounts designated by QTS TRS and shall be free and clear of any withholding Taxes. If any payment required under this Agreement is made after the date on which such payment is due, interest shall accrue on such amount from (but not including) the due date of the payment to (and including) the date such payment is actually made at an interest rate of five percent (5%) per annum. All computations of interest pursuant to this Agreement shall be made on the basis of a year of 365 days, in each case for the actual number of days from (but not including) the first day to (and including) the last day occurring in the period for which such interest is payable.

(d) Buyer’s obligation to pay each of the Channel Fees to QTS TRS under this Section 1 is an independent obligation of Buyer and is not otherwise conditioned or contingent upon the satisfaction of any conditions precedent to any preceding or subsequent Channel Fee or any other obligation under any agreement between the Parties.

(e) Notwithstanding anything to the contrary in this Agreement, in the event that Buyer transfers or assigns any of its rights or obligations under a Current Customer Contract, Replacement Customer Contract or New Customer Contract to a third party, Buyer shall remain obligated for all Channel Fees and other obligations under this Agreement with respect to such Current Customer Contract, Replacement Customer Contract or New Customer Contract, except

to the extent such Channel Fees are actually paid to QTS TRS by the assignee of any such contract.

(f) For purposes of this Agreement:

(i) “ Current Customer Contract ” means each Assigned Contract (including all amendments thereto) listed as a customer contract on Section 2.01(a)(i) of the Disclosure Letter to the Transaction Agreement that is or becomes (A) Transferred to Buyer pursuant to a Bill of Sale, Assignment and Assumption Agreement or (B) subject to a Participation Arrangement under the Transaction Agreement, as the case may be;

(ii) “ Current Term ” means the term of a Current Customer Contract in effect (A) at the applicable Transfer Effective Time or (B) as of the date it becomes subject to a Participation Arrangement under the Transaction Agreement, as the case may be;

(iii) “ New Customer Contract ” means each agreement (including all amendments thereto) entered into between Buyer or one of its Affiliates and any third party referred to Buyer by QTS TRS, its Affiliates or their respective Representatives if such third party or any of its Affiliates was not a customer of Buyer or any of its Affiliates during the eighteen (18)-month period prior to such referral or was not a potential customer to which Buyer or any of its Affiliates had provided a written proposal for substantially the same services during the eighteen (18)-month period prior to such referral;

(iv) “ Recognized Revenue ” means the Revenue recognized under a Current Customer Contract, Replacement Customer Contract or New Customer Contract, as the case may be, in each calendar month or portion thereof on and after (A) the applicable Transfer Effective Time, (B) the date it becomes subject to a Participation Arrangement under the Transaction Agreement or (C) the effective date of such Replacement Customer Contract or New Customer Contract, as the case may be;

(v) “ Replacement Customer Contract ” means each agreement (including all amendments thereto) entered into between Buyer or one of its Affiliates and any third party that is or was a customer under a Current Customer Contract;

(vi) “ Revenue ” means all revenue under a Current Customer Contract, Replacement Customer Contract or New Customer Contract, as the case may be, including all monthly recurring revenue and non-recurring revenue or charges (including any amounts payable as a termination fee), excluding, for the avoidance of doubt, (x) the portion of such revenue to be passed through to QTS LP or its Affiliates as a payment under the Colocation Agreement, (y) the effect of any credits to which the customer may be entitled as a result of Buyer’s failure to meet services levels under applicable Current Customer Contract, Replacement Customer Contract or New Customer Contract, and (z) the portion of such revenue related to Buyer’s core business, including but not limited to, any sale of IT hardware, software and licensing; IT solutions integration & delivery, including design, staging, configuring, testing and installation; and managed services delivered outside a hosted environment at a QTS data center facility (including all leased and owned facilities); and

(vii) “ Third Party Channel Credit ” means, with respect to any Current Customer Contract and Replacement Contract under which Buyer owes a channel fee or payment to a third party, for each calendar month, an amount equal to fifty percent (50%) of the amount of such third party channel fee or payment payable by Buyer to such third party for such calendar month.

2. Quarterly Review Process .

(b) QTS TRS shall have ten (10) days after receipt of the Calculation Statement with respect to the third month of each Fiscal Quarter (the “ Review Period ”) to review such Calculation Statement, the Channel Fee Calculation set forth therein, together with the Calculation Statements and calculations with respect to the other two months in such Fiscal Quarter. During the Review Period, QTS TRS and its Representatives shall have the right to inspect Buyer’s books and records during normal business hours at Buyer’s offices, upon reasonable prior notice and solely for purposes reasonably related to the determinations of Recognized Revenue for such Fiscal Quarter and the resulting Channel Fee. Prior to the expiration of the Review Period, QTS TRS may object to the Channel Fee Calculation set forth in the Calculation Statements for such Fiscal Quarter by delivering to Buyer a written notice of objection (an “ Objection Notice ”), setting forth the items in the applicable Channel Fee Calculation disputed by QTS TRS and the basis for such objection, as well as the amount in dispute. If QTS TRS fails to deliver an Objection Notice to Buyer prior to the expiration of the Review Period, then the Channel Fee Calculation set forth in the Calculation Statements for such Fiscal Quarter shall be final and binding on the Parties. If QTS TRS timely delivers an Objection Notice, Buyer and QTS TRS shall negotiate in good faith to resolve the disputed items and agree upon the resulting amount of the Recognized Revenue and the Channel Fee for the applicable Fiscal Quarter. If Buyer and QTS TRS are unable to reach agreement within fifteen (15) days after delivery of such Objection Notice, all unresolved disputed items shall be promptly referred to an impartial nationally recognized firm of independent certified public accountants, other than QTS TRS’s accountants or Buyer’s accountants, appointed by mutual agreement of Buyer and QTS TRS (the “ Independent Accountant ”). The Independent Accountant shall be directed to render a written report with respect to any unresolved disputed items as promptly as practicable, but in no event more than thirty (30) days following submission of such items to the Independent Accountant, and to resolve only those unresolved disputed items set forth in the Objection Notice. “ Fiscal Quarter ” means the three-month period ending on each March 31, June 30, September 30 and December 31 following the Effective Date. If unresolved disputed items are submitted to the Independent Accountant, Buyer and QTS TRS shall each furnish to the Independent Accountant such work papers, schedules and other documents and information relating to the unresolved disputed items as the Independent Accountant may reasonably request. The Independent Accountant shall resolve the disputed items based solely on the applicable definitions and other terms in this Agreement and the Transaction Agreement and the presentations by Buyer and QTS TRS, and not by independent review. The resolution of the disputed items and the calculation of Recognized Revenue as set forth in the Independent Accountant’s written report shall be final and binding on the Parties hereto. With respect to any unresolved disputed items submitted to the Independent Accountant, the fees and expenses of the Independent Accountant shall be borne by QTS TRS and Buyer in proportion to the amounts by which their respective calculations of Recognized Revenue differ from Recognized Revenue as finally determined by the Independent Accountant.

(c) In the event that QTS TRS delivers an Objection Notice, within five (5) days of final resolution of such Objection Notice in accordance with Section 2(a) (whether or not by the Independent Accountant), the Buyer shall pay to QTS TRS or QTS TRS shall pay to the Buyer, as the case may be, the difference between (x) the aggregate Channel Fees previously paid by the Buyer with respect to such Fiscal Quarter, and (y) the aggregate Channel Fees with respect to such Fiscal Quarter as finally determined in accordance with Section 2(a) (the “ True-Up Payment ”).

(d) To the extent any True-Up Payment is not paid by Buyer to QTS TRS or by QTS TRS to Buyer, as the case may be, when due hereunder, such amount shall bear interest computed in accordance with Section 1(c) .

(e) For the avoidance of doubt, the procedures set forth in this Section 2 for a Fiscal Quarter shall have no effect on the obligations, timing of payments of Channel Fees and delivery of Calculation Statements pursuant to Section 2 for calendar months in the subsequent Fiscal Quarter.

3. Certain Obligations of the Parties .

(a) Until the later of (x) the third (3rd) anniversary of the Effective Date or (y) the effective date of a QTS Direct Colocation Contract (as defined below) entered into in respect of a Current Customer Contract, Replacement Customer Contract or New Customer Contract, Buyer hereby agrees to conduct any and all activities in connection with this Agreement and each Current Customer Contract, Replacement Customer Contract and New Customer Contract in accordance with applicable Law, in good faith, consistent with the highest standards of fair trade, fair competition and business ethics, and Buyer shall use reasonable best efforts to operate the services and perform its obligations under each Current Customer Contract, Replacement Customer Contract and New Customer Contract consistent in all material respects with the manner, nature and level of quality with which the Seller Parties operated such services and performed such obligations (or in the case of a New Customer Contract, similar services or obligations) prior to the applicable Transfer Effective Time or the date of any applicable Participation Arrangement under the Transaction Agreement. Notwithstanding the foregoing, Buyer shall control, in its sole discretion, all decisions and actions with respect to its performance under the Current Customer Contracts, Replacement Customer Contracts and New Customer Contracts, including with respect to any pricing and service decisions. Nothing in this Agreement shall be construed as prohibiting Buyer or any customer under a Current Customer Contract, Replacement Customer Contract or New Customer Contract from terminating such agreement.

(b) If, at any time until the later of (x) the third (3rd) anniversary of the Effective Date or (y) the effective date of a QTS Direct Colocation Contract entered into in respect of a Current Customer Contract or Replacement Customer Contract, Buyer shall have breached any covenant or agreement under this Agreement or such Current Customer Contract, or Replacement Customer Contract in any material respect and such breach shall remain uncured to the Seller Parties’ reasonable satisfaction for a period of sixty (60) days (in the case of a breach of this Agreement) or the cure period under the applicable Current Customer Contract, or Replacement Customer Contract, then, to the extent requested by the Seller Parties, Buyer shall reassign to the Seller Parties, their respective Affiliates or other designees any such Current

Customer Contract or Replacement Customer Contract, with such reassignment using a form of assignment substantially similar to the Bill of Sale, Assignment and Assumption Agreement and with any applicable Purchased Tangible Personal Property repurchased by the Seller Parties, or their respective Affiliates or designees, in exchange for the liquidation value based on a valuation by an accounting, financial or consulting firm designated and mutually agreed to by both parties.

(c) Buyer and its Affiliates shall use facilities owned by QTS TRS or its Affiliates with respect to all colocation requirements for services under all Current Customer Contracts, Replacement Customer Contracts and New Customer Contracts. Upon QTS TRS’s request, in connection with any renewal of any Current Customer Contract, Replacement Customer Contract or, if applicable, New Customer Contract, QTS TRS or its Affiliates may enter into colocation agreements directly with the applicable customer in lieu of the obligation of Buyer to provide colocation services under such renewed contract, and Buyer shall reasonably cooperate with QTS TRS and its Affiliates to transfer such colocation requirements from the applicable Current Customer Contract, Replacement Customer Contract or New Customer Contract to agreements directly between QTS TRS or its Affiliates, on the one hand, and the customer, on the other hand (each, a “ QTS Direct Colocation Contract ”).

(d) During the term of this Agreement, Buyer shall use reasonable best efforts to maintain separate books and records with respect to the Current Customer Contracts, Replacement Customer Contracts and New Customer Contracts, separate from the books and records of Buyer’s other businesses or contracts.

(e) If so requested by QTS TRS any time on or after the Effective Date, Buyer shall (and, as applicable, shall cause its Affiliates and Representatives to), at the expense of QTS TRS, enter into a customary joint defense agreement or common interest agreement with one or more of the Seller Parties or any of their respective Affiliates with respect to any information provided to Buyer, or to which Buyer gains access, from QTS TRS.

(f) If so requested by QTS TRS any time on or after the Effective Date, Buyer and the Seller Parties shall conduct their interactions generally and any exchange of Calculation Statements or Objection Notices through “clean team” procedures in compliance with applicable Law.

4. Data Center Services .

(a) For purposes of this Agreement:

(i) “ Current Data Center Services ” means any agreement, in effect as of the date hereof, between Buyer or its Affiliate and a third party for the provision or lease of wholesale or retail data center colocation space and/or related services to, or for the benefit of, Buyer, its Affiliate or a customer of Buyer or its Affiliate, including, but not limited to in connection with any New Customer Contract; and

(ii) “ New Data Center Services ” means any transaction or agreement for the provision or lease of wholesale or retail data center colocation space and/or related

services to, or for the benefit of, Buyer, its Affiliate or a customer of Buyer or its Affiliate, including, but not limited to in connection with any New Customer Contract.

(b) If and at each time, during the term of this Agreement, (i) Buyer or its Affiliate wishes to obtain any New Data Center Services or (ii) the then-current term of any Current Data Center Services expires and Buyer or its Affiliates wishes to renew/replace such Current Data Center Services, then, before entering into any discussions or negotiations with any third party with respect to such New Data Center Services or renewal/replacement of Current Data Center Services, Buyer shall deliver written notice to QTS TRS of its desire to obtain such New Data Center Services (or renew/replace Current Data Center Services) (the “ ROFN Notice ”), which notice shall offer to QTS TRS the first right to negotiate exclusively to provide such New Data Center Services (or replace such Current Data Center Services) to Buyer or its Affiliate (the “ Right of First Negotiation ”). In the event that QTS TRS elects to exercise its Right of First Negotiation, QTS TRS will have ten (10) days after the date of delivery of the ROFN Notice (the “ Assessment Period ”) to notify Buyer of such election in writing (the “ Election Notice ”). Upon delivery of the Election Notice, Buyer and QTS TRS hereby agree to negotiate in good faith the price and other terms and conditions of the New Data Center Services (or replacement of Current Data Center Services) among the Parties or their respective Affiliates during an additional sixty (60)-day period following delivery of QTS TRS’s Election Notice (the “ Negotiation Period ”). For the avoidance of doubt, all information exchanged among the Parties and their respective Representatives during such discussions and negotiations shall be subject to the confidentiality provisions of Section 6 hereof.

(c) In the event that (i) QTS TRS exercises its Right of First Negotiation, but the Parties do not enter into a definitive or other binding agreement with respect to the New Data Center Services (or replacement of Current Data Center Services) during the Negotiation Period, or (ii) QTS TRS does not exercise its Right of First Negotiation during the Assessment Period, Buyer may thereafter enter into discussions, negotiations and/or a definitive or other binding agreement with a third party with respect to such applicable New Data Center Services (or renewal/replacement of Current Data Center Services).

(d) The terms of this Section 4 are subject to, and are not intended to modify, the terms of Section 9 (Assignment) hereof.

5. Representations and Warranties of the Parties .

(a) QTS TRS is a limited liability company duly formed or organized, validly existing and in good standing under the laws of the State of Delaware. QTS TRS is duly qualified to do business and is in good standing in the jurisdiction of its organization and as a foreign entity in each jurisdiction where the character of the properties owned or leased by it or the nature of the business transacted by it requires it to be so qualified, except where any such failure could not reasonably be expected to result in a material adverse effect on such QTS TRS’s assets, properties, business or operations. QTS TRS has the requisite corporate or other appropriate power to execute, deliver and perform its obligations under this Agreement. The execution, delivery and performance of this Agreement by QTS TRS have been duly authorized by all requisite corporate or organizational action on the part of QTS TRS, and no shareholder or other similar approval is required in connection with QTS TRS’s execution, delivery and performance of this Agreement. This Agreement has been duly executed and

delivered by QTS TRS, and (assuming due authorization, execution and delivery by the other Party hereto) this Agreement constitutes legal, valid and binding obligations of QTS TRS enforceable against QTS TRS in accordance with its terms, subject to the effect on enforceability of any applicable Law relating to bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance or preferential transfers, or similar Law relating to or affecting creditors’ rights generally and general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).

(b) Buyer is a limited partnership duly formed or organized, validly existing and, to the extent legally applicable, in good standing under the Laws of the State of Texas. Buyer is duly qualified to do business and is in good standing in the jurisdiction of its organization and as a foreign entity in each jurisdiction where the character of the properties owned or leased by it or the nature of the business transacted by it requires it to be so qualified, except where any such failure could not reasonably be expected to result in a material adverse effect on such Buyer’s assets, properties, business or operations. Buyer has the requisite corporate or other appropriate power to execute, deliver and perform its obligations under this Agreement. The execution, delivery and performance of this Agreement by Buyer have been duly authorized by all requisite corporate or organizational action on the part of Buyer, and no shareholder or other similar approval is required in connection with Buyer’s execution, delivery and performance of this Agreement. This Agreement has been duly executed and delivered by Buyer, and (assuming due authorization, execution and delivery by the other Party hereto) this Agreement constitutes legal, valid and binding obligations of Buyer enforceable against Buyer in accordance with its terms, subject to the effect on enforceability of any applicable Law relating to bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance or preferential transfers, or similar Law relating to or affecting creditors’ rights generally and general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).

6. Confidentiality . Without limiting the obligations set forth in the Confidentiality Agreement, each Party agrees that all non-public information concerning the transactions contemplated by this Agreement and the Parties’ performance of their respective obligations hereunder will be used by such Party solely in the course of its performance hereunder and will be treated confidentially for so long as it remains non-public and does not otherwise become public by the unauthorized disclosure of such Party in violation of this Section 6 . Except as contemplated in the performance of its obligations hereunder or as permitted by Section 9.04 of the Transaction Agreement, or as otherwise required by applicable Law or Government Authority, such Party shall not disclose such information to any third party, other than such Party’s Representatives, without the prior written consent of the other Party. Notwithstanding the foregoing, the following will not constitute “non-public information” for purposes of this Agreement: (a) information which was already in such Party’s possession without any obligation of confidentiality prior to its receipt from the other Party; (b) information which is obtained by such Party from a third party who, insofar as is known to such Party, is not prohibited from transmitting the information to such Party by a contractual, legal or fiduciary obligation to the other Party; and (c) information which is or becomes publicly available through no fault of such Party. At the written request of the other Party and to the extent practicable and permitted by applicable Law or Government Authority, such Party will promptly, at its election, destroy or return paper copies of such information to the other Party at the other Party’s sole expense, and destroy that portion of such information that may be found in analyses, compilations, studies or

other documents prepared by such Party or its representatives. Notwithstanding the foregoing, such information may be retained by such Party and its Representatives to the extent (i) required by applicable Law, Government Authority, or internal compliance or document retention policies or (ii) electronically stored pursuant to automatic back-up storage or archival procedures or systems.

7. Non-Interference . Except as otherwise provided in this Agreement, QTS TRS agrees that QTS TRS will not, directly or indirectly, (a) during the term of this Agreement, interfere with the performance of the parties under any Current Customer Contracts, Replacement Customer Contracts and New Customer Contracts (including any renewal of any of the foregoing), or (b) for a period of three years from the date hereof, solicit any party to a Current Customer Contract to terminate its relationship with Buyer with respect to the services required to be provided, and actually being provided, under such contract (whether provided under such contract or a Replacement Customer Contract), in order to obtain such services from a third party provider; provided , however , that nothing in this Agreement shall be construed as limiting (x) the ability or rights of the Seller Parties or their respective Affiliates, on the one hand, and any customer under a Current Customer Contract or Replacement Customer Contract, on the other hand, from communicating directly with each other regarding the services provided under such contract or potential referrals to another service provider following such time as the Seller Parties are permitted to request reassignment of such contract pursuant to Section 3(b) above, or (y) QTS TRS and its Affiliates from selling new or additional products to any person, including any customer under a Current Customer Contract or Replacement Customer Contract, regardless of whether such products are the same or similar to the services required to be provided, and actually being provided, under such contract.

8. Term . Unless terminated earlier by written agreement of the Parties hereto, this Agreement shall become effective on the Effective Date and shall remain in effect until expiration or termination of all Current Customer Contracts, Replacement Customer Contracts and New Customer Contracts (including any renewal of any of the foregoing) in accordance with the terms thereof and payment by a Party to another Party of all amounts due hereunder.

9. Assignment . This Agreement will be binding upon and inure to the benefit of and be enforceable by the respective successors and permitted assigns of the Parties. Neither Party may assign (whether by operation of Law or otherwise) this Agreement or any rights, interests or obligations provided by this Agreement without the prior written consent of the other Party; provided , however , that notwithstanding the foregoing, QTS TRS may assign this Agreement or any or all of its rights and obligations hereunder to any Person that at the time of such assignment is a Permitted Assignee and that expressly assumes all of the obligations of QTS TRS hereunder, in which case upon any such permitted assignment by QTS TRS the references in this Agreement to QTS TRS shall apply to such assignee unless the context otherwise requires. Any attempted assignment in violation of this Section 9 shall be void ab initio .

10. Independent Contractors; Limitation on Scope of Authority . This Agreement does not contemplate, create or constitute a joint venture, partnership or similar relationship between QTS TRS and Buyer. Each Party shall have no right, authority or power to represent, or act on behalf of the other Party unless expressly authorized to do so in this Agreement.

11. Notices . All notices and communications concerning this Agreement shall be addressed to:


If to Buyer:

General Datatech, L.P.
999 Metro Media Place
Dallas, Texas 75247
Attn: GDT Legal Department
E-Mail: legal@gdt.com

If to QTS TRS

Quality Technology Services Holding, LLC
12851 Foster Street
Overland Park, KS 66213
ATTN: General Counsel
Fax: 877-772-5290
E-Mail: legal@qtsdatacenters.com

Or such address as may be designated in writing to the other party. Notices may be sent using a reliable overnight courier.

12. Law . This Agreement will be exclusively governed by and construed and enforced in accordance with the internal Laws of the State of Delaware, excluding conflict of laws rules.

13. Remedies; Specific Performance . Except to the extent set forth otherwise in this Agreement, all remedies under this Agreement expressly conferred upon a Party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such Party, and the exercise by a Party of any one remedy will not preclude the exercise of any other remedy. Each Party agrees that irreparable damage would occur and the Parties would not have an adequate remedy at law if any provision of this Agreement is not performed in accordance with its specific terms or is otherwise breached. Accordingly, each Party agrees that the other Parties will be entitled to injunctive relief from time to time to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions of this Agreement, in each case (i) without the requirement of posting any bond or other indemnity and (ii) in addition to any other remedy to which it may be entitled, at law or in equity. Furthermore, each Party agrees not to raise any objections to the availability of the equitable remedy of specific performance to prevent or restrain breaches of this Agreement, and to specifically enforce the terms of this Agreement to prevent breaches or threatened breaches of, or to enforce compliance with, the covenants and obligations of such Party under this Agreement. Each Party expressly disclaims that it is owed any duty not expressly set forth in this Agreement, and waives and releases all tort claims and tort causes of action that may be based upon, arise out of or relate to this Agreement, or the negotiation, execution or performance of this Agreement.

14. Severability . If any term or provision of this Agreement is held invalid, illegal or unenforceable in any respect under any applicable Law, as a matter of public policy or on any other grounds, the validity, legality and enforceability of all other terms and provisions of this Agreement will not in any way be affected or impaired. If the final judgment of a court of competent jurisdiction or other Government Authority declares that any term or provision hereof is invalid, illegal or unenforceable, the Parties hereto shall negotiate in good faith to modify this Agreement to effect the original intent of the Parties as closely as possible in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible, including to reduce the scope, duration, area or applicability of the term or provision, to delete specific words or phrases, or to replace any invalid, illegal or unenforceable term or provision with a term or provision that is valid, legal and enforceable; provided that if no such agreement shall be reached among the Parties, the Parties agree that the court shall have such power to modify this Agreement to effect the original intent of the Parties as closely as possible in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

15. Counterparts . This Agreement may be executed and delivered in counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. Facsimiles, e-mail transmission of .pdf signatures or other electronic copies of signatures shall be deemed to be originals.

16. Entire Agreement . This Agreement and the other Transaction Agreements (and all exhibits and schedules hereto and thereto) collectively constitute and contain the entire agreement and understanding of the Parties with respect to the subject matter hereof and thereof and supersede all prior negotiations, correspondence, understandings, agreements and contracts, whether written or oral, between the Parties respecting the subject matter hereof and thereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;

SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, each of the Parties have caused this Agreement to be executed and delivered on the date first written above by its respective duly authorized officer.


	QTS TRS:

	QUALITY TECHNOLOGY SERVICES HOLDING, LLC

	By	/s/ Chad L. Williams
		Name: Chad L. Williams
		Title: President and Chief Executive Officer


	BUYER:

	GENERAL DATATECH, L.P.

	By Gendata, L.L.C., its general partner

	By	/s/ John W. Roberts
		Name: John W. Roberts
		Title: President

[Signature Page to Channel Agreement]

Exhibit 10.4

EXECUTION VERSION

TRANSITION SERVICES AGREEMENT

THIS TRANSITION SERVICES AGREEMENT (together with the Exhibits hereto, this “ Agreement ”), dated as of April 24, 2018 (the “ Effective Date ”), is made by and between Quality Technology Services Holding, LLC, a Delaware limited liability company (“ Service Provider ”), and General Datatech, L.P., a Texas limited partnership (“ Buyer ”). Each of Buyer and Service Provider is referred to herein as a “ Party ” or collectively as the “ Parties .”

RECITALS

A. Service Provider and Buyer, among others, are parties to that certain Transaction Agreement, dated as of even date herewith (as amended or modified from time to time in accordance with the terms thereof, the “ Transaction Agreement ”), pursuant to which, among other things, as of the date of this Agreement and subject to the terms and conditions of the Transaction Agreement, the Seller Parties or their Affiliates have transferred or will transfer to Buyer, and Buyer has acquired and assumed or will acquire and assume, the Purchased Assets and the Assumed Liabilities, used in certain hybrid cloud, hosting and managed services (such Purchased Assets and Assumed Liabilities, the “ Transferred Products ”), which for the avoidance of doubt does not include the colocation, communication and related managed services provided to such customers.

B. In connection with the transactions under the Transaction Agreement, Buyer desires for Service Provider to provide, and Service Provider desires to provide to Buyer and its applicable Affiliates (the “ Buyer Parties ”), following the applicable Transfers or Participation Arrangements, certain transitional support services for the Transferred Products.

ARTICLE I.

DEFINITIONS

Section 1.01 Definitions . Capitalized terms used in this Agreement but not defined herein shall have the meanings given to them in the Transaction Agreement.

ARTICLE II.

TRANSITION SERVICES

Section 2.01 The Transition Services .

(a) Transition Services . On the terms and subject to the conditions set forth in this Agreement, from the date of the first Transfer of a Current Customer Contract (or Participation Arrangement) until August 31, 2018 or such earlier date as the parties may agree with respect to any Current Customer Contract (the “ Cutoff Date ”), Service Provider will provide to the Buyer Parties those services (the “ Transition Services ”) identified on Exhibit A

hereto, as such may be amended or supplemented as agreed by the Parties from time to time; provided that such Transition Services may only be a service of a type and nature performed by Service Provider or its Affiliates with respect to the Transferred Products prior to the applicable Transfer. Service Provider may provide all or part of the Transition Services through an outsourcing or other third-party provider arrangement or through one or more of its Affiliates to the extent Service Provider has retained such outsourcing or other third-party providers consistent with Service Provider’s past practices; provided , however , if the use of such outsourcing or other third-party providers is not consistent with Service Provider’s past practices, Service Provider shall obtain the prior written consent of Buyer to enter into any such arrangement such consent not to be unreasonably withheld. Service Provider will in all cases retain responsibility for providing the Transition Services to Buyer that may be provided by such outsourcing or other third-party providers. Nothing in this Agreement shall require or be interpreted to require Service Provider or its Affiliates to provide a Transition Service to any Buyer Party beyond the scope and content of such Transition Service performed by Service Provider or its Affiliates with respect to the Transferred Products in the period immediately prior to the applicable Transfer or Participation Arrangement. Notwithstanding any provision of this Agreement, no Transition Services provided under this Agreement shall include, or shall be construed as constituting, accounting, legal or tax advice or shall create any fiduciary obligations on the part of Service Provider or any of its Affiliates to any Person, including to Buyer or any of its Subsidiaries or Affiliates, or to any plan trustee or any customer of any of them.

(b) Temporary Suspension or Modification . To the extent permitted under any Current Customer Contract or under any Replacement Customer Contract thereunder, Service Provider may from time to time shut down temporarily or suspend the operation of any systems or facilities necessary for the provision of any Transition Service for modification, upgrade, maintenance or replacement, or for legal, compliance or security purposes, whenever in its judgment such action is reasonably necessary, and Service Provider shall be relieved of its obligations to provide Transition Services during such period that its systems or facilities are shut down or suspended, but shall still be obligated to pay the Buyer any SLA credits associated with such action as defined in the Customer Contracts, if any. Service Provider shall promptly notify Buyer upon becoming aware of the need to suspend or shut down and shall use commercially reasonable efforts to minimize disruptions to the operation of or performance under the Transferred Products; provided , however , that notwithstanding the foregoing, Service Provider may immediately shut down or suspend the operation of any systems or facilities necessary for the provision of any Transition Service without prior notice in the case of an emergency shut down or suspension for legal, compliance or security purposes.

(c) Termination of Transition Services . Service Provider shall have the right, upon reasonable notice to Buyer, to terminate or discontinue any Transition Service if Service Provider and its applicable Affiliates are terminating or discontinuing such same service to its business units, business divisions or Affiliates in general. Buyer may terminate any Transition Service, in whole or in part, upon fifteen (15) days’ prior notification to Service Provider in writing of Buyer’s determination.

(d) Significant Transition Service or System Changes . Service Provider shall have the right to upgrade or replace its systems through which Transition Services are being provided to Buyer as part of any upgrade or replacement made generally to Service Provider’s

shared systems, business units, business divisions or Affiliates. In the case of any such upgrade or replacement, Service Provider shall notify Buyer reasonably in advance of any such upgrade or replacement, and shall provide a good faith estimate of the incremental cost, if any, that would reasonably be expected to be incurred by Service Provider and its Affiliates in implementing such upgraded or replaced shared system (including the cost of any necessary security systems) in order to enable Service Provider and its Affiliates to continue providing the Transition Services to the Buyer Parties hereunder (the “ Buyer Incremental Cost ”). Buyer shall be responsible for such Buyer Incremental Cost; provided that if Buyer does not wish to pay such Buyer Incremental Cost, Buyer may, within thirty (30) days following notice of such upgrade or replacement from Service Provider to Buyer, elect to discontinue any such affected Transition Service(s) with effect on a date that is prior to the date Service Provider has notified Buyer is the scheduled date for the implementation of such upgraded or replaced shared system with respect to the Transferred Products.

(e) Standard of Service . Service Provider represents, warrants and agrees that it shall provide the Transition Services in good faith, in accordance with all applicable laws and in a manner generally consistent with its past practices prior to the applicable Transfers or Participation Arrangements. Subject to the second sentence of Section 2.01(a) , Service Provider will allocate sufficient resources and qualified personnel as reasonably required to perform the Transition Services in accordance with this Agreement.

Section 2.02 Certain Obligations .

(a) Policies and Procedures; Use of Transition Services . Buyer shall, and shall cause its Affiliates to, adhere to applicable policies and procedures of Service Provider, its Affiliates and third-party providers relevant to the Transition Services that are communicated in writing to Buyer and are (i) in effect as at the date hereof, or (ii) adopted at any time (and from time to time) during the term of this Agreement (and which are promptly notified to Buyer following any such adoption). The Buyer Parties shall use the Transition Services only for substantially the same purpose and in substantially the same manner as the Transferred Products used the Transition Services prior to the applicable Transfers or Participation Arrangements. Neither Buyer nor any Affiliate of the Buyer shall be permitted to use any Transition Service for any purpose other than in connection with the operation of or performance under the Transferred Products and the transition of the Transferred Products from Service Provider’s and its Affiliates’ support systems in accordance with this Agreement.

(b) Cooperation; Information . The Parties agree to, and agree to cause their respective Affiliates to, cooperate as reasonably requested by the other Party to assist such Party, its Affiliates and third-party providers of Service Provider in performing the Transition Services. Buyer shall be responsible for providing certain information to Service Provider, or to any Affiliate of Service Provider or third-party provider engaged to perform particular Transition Services, on a timely basis and in a format and with the level of detail acceptable to Service Provider or its Affiliate or third-party provider to enable Service Provider or its Affiliate or third-party provider to provide Transition Services under this Agreement.

(c) Limited Use of Transition Services . The Buyer Parties shall use the Transition Services only in connection with (i) the conduct of the Transferred Products in the

ordinary course, and (ii) the separation of the Transferred Products from the remaining businesses of Service Provider and its Affiliates. Buyer and its Affiliates shall not resell, assign or subcontract any of the Transition Services to any Person whatsoever or permit the use of the Transition Services by any Person other than the Buyer Parties in accordance with this Agreement.

(d) Limited License . To the extent required to deliver the Transition Services as contemplated in this Agreement, Buyer hereby grants and licenses (on a non-transferrable and terminable at will basis) to Service Provider and its applicable Affiliates and any applicable third-party providers, the right to access and use any Intellectual Property owned or licensed by Buyer and its Affiliates solely to the extent necessary for the purposes of rendering Transition Services under this Agreement; provided that if Buyer terminates any such license right for any reason other than Service Provider’s, its Affiliate’s or any third party provider’s breach of this Agreement, Service Provider shall be relieved of its obligations to provide the portion of the Transition Services to which such license right relates.

Section 2.03 Ingress and Egress . Buyer hereby grants to Service Provider and its applicable Affiliates and any applicable third-party providers, at all times during the term of this Agreement, the right to ingress to and egress from the premises (or space) occupied by the Buyer Parties upon reasonable notice and during normal business hours for purposes necessary to the delivery of Transition Services hereunder, and the Buyer shall be entitled at any time to restrict or prohibit the access to its premises (or space) upon delivery of written notice to the Service Provider or its relevant agents or employees; provided that if Buyer restricts or prohibits the access to its premises (or space) for any reason other than Service Provider’s, its Affiliate’s or any third party provider’s breach of this Agreement, Service Provider shall be relieved of its obligations to provide the portion of the Transition Services for which such access is necessary. Service Provider agrees that all of its and its Affiliates’ and third-party provider’s employees or contractors, when on the premises (or space) occupied by the Buyer Parties, shall conform to the policies and procedures of Buyer that are communicated in writing to Service Provider and are (i) in effect as at the date hereof, or (ii) adopted at any time (and from time to time) during the term of this Agreement (and which are promptly notified to Service Provider following any such adoption).

Section 2.04 Limitations on Transition Services . Buyer acknowledges that Service Provider is agreeing to perform Transition Services in order to facilitate the Buyer Parties’ operation of or performance under the Transferred Products as described in the Transaction Agreement. Service Provider shall not be required to expand its facilities, incur any capital expenditures or costs, employ additional personnel or maintain the employment of any specific persons in order to provide the Transition Services to the Buyer Parties.

Section 2.05 Separation and Migration . In order to facilitate the separation of the Transferred Products from the business and organization of Service Provider and its Affiliates, including separation of the computer systems, infrastructure, databases, software, facilities, networks and other personal property included in the Transferred Products (collectively, the “ Systems ”) from Service Provider’s and its Affiliates’ Systems (“ Systems Separation ”), the Parties shall, and shall cause their Affiliates to, upon prior notice and at no cost to either Party (a) provide reasonable access, during regular business hours, to such personnel of the Parties and

their Affiliates as reasonably designated to advise and provide knowledge transfer on the process and method for efficient and timely implementation of the Systems Separation, (b) provide copies of such files, documents, books, records, and other information as may be necessary or helpful to design a plan and/or prepare for the Systems Separation, and (c) cooperate in good faith to design and develop a plan for the Systems Separation. In addition, Service Provider shall and shall cause its Affiliates to, upon prior notice from Buyer, (i) provide computers and storage for Buyer to install and set up monitoring and management tools and gain remote access to the hosted environment, and (ii) to the extent required by third party vendors, provide a letter of authorization to Buyer.

Section 2.06 Intellectual Property . In connection with the performance of the Transition Services hereunder, the Parties may have access to or use of certain Intellectual Property disclosed or licensed by third parties to the other Party or its Affiliates (“ Third-Party Intellectual Property ”) as well as certain Intellectual Property owned by a Party or its Affiliates (“ TSA Party Intellectual Property ”). To the extent necessary or appropriate to protect any such Third-Party Intellectual Property or TSA Party Intellectual Property, each Party shall, and shall cause its Affiliates to, enter into non-disclosure agreements with third parties or take other reasonable actions with respect to such Third-Party Intellectual Property or TSA Party Intellectual Property as may be reasonably requested by the other Party from time to time. Other than as permitted by this Agreement, the no Party shall have any rights in or to any such Third-Party Intellectual Property or TSA Party Intellectual Property of the other Party as a result of any such access or use. The Parties shall comply in all respects with the terms and conditions of any arrangement between any third parties and the other Party or its Affiliates, as the case may be, with respect to any Third-Party Intellectual Property disclosed to or used by a Party or any of its Affiliates as if the receiving Party or such Affiliates, as the case may be, were a direct party to such arrangements, including any obligations with respect to confidentiality and restrictions on use of Third-Party Intellectual Property. Each Party assumes all liability associated with any breach by it of any terms and conditions of any agreement or other arrangement of which it is aware between any third parties and the other Party or its Affiliates in connection with the Transition Services, and without limiting the rights of the disclosing Party under the Transaction Agreement and the other Transaction Agreements, hereby indemnifies the disclosing Party, its Affiliates and their respective Representatives (together with their respective successors and permitted assigns) against, and agrees to defend and hold them harmless from, any and all assessments, losses, damages, costs, expenses, liabilities, judgments, awards, fines, sanctions, penalties, charges and amounts paid in settlement, including reasonable costs, fees and expenses of attorneys, accountants and other agents or Representatives of any of them (collectively, “ Damages ”) suffered by any of them arising out of, resulting from or related to any claim that the receiving Party’s or any of its Affiliates’ access to or use of Third-Party Intellectual Property not in compliance with the terms of this Agreement violates the Intellectual Property or other rights of any Person, or breaches a term or condition of any arrangement between the disclosing Party or its Affiliates and any third party. Without limiting the foregoing, it is acknowledged and agreed that neither Party nor any of its Affiliates shall have any rights in or access to any source code with respect to any Third-Party Intellectual Property or TSA Party Intellectual Property of the other Party. No Party or any of its Affiliates shall, through reverse engineering or any other means, attempt to access any such source code and shall use the Third-Party Intellectual Property and the TSA Party Intellectual Property of the other Party only for its intended use.

Section 2.07 Seller Names and Seller Marks . Buyer acknowledges and agrees that, except as otherwise expressly set forth in the Transaction Agreement, neither Buyer nor its Affiliates is obtaining any rights in or licenses to use any Seller Names and Seller Marks.

ARTICLE III.

COMPENSATION; BILLING

Section 3.01 Compensation . As compensation for the Transition Services provided hereunder, Buyer shall pay Service Provider the amounts contemplated in Exhibit A hereto.

Section 3.02 Third Party Costs and Expenses . Except as otherwise provided on Exhibit A with respect to any Transition Services, Buyer shall pay Service Provider such amounts as may be necessary to reimburse Service Provider and its Affiliates for any reasonable fees, costs or out-of-pocket expenses reasonably incurred by Service Provider or its Affiliates and previously approved in writing by Buyer in connection with performing the Transition Services, including (a) third-party costs associated with the rehosting of current and historical data of the Transferred Products on Buyer’s and its Subsidiaries’ platforms, (b) incremental license or similar fees paid to third parties, including software vendors or licensors, as a result of the provision of Transition Services to the Buyer Parties, (c) third-party costs associated with systems maintenance and periodic upgrades of system hardware or software reasonably necessary to provide the Transition Services, (d) third-party costs incurred in connection with implementing and causing the Systems Separation, and (e) the Buyer Incremental Cost (if Buyer does not elect to discontinue the applicable Transition Services as provided in Section 2.01(c) ). Buyer shall, upon request of Service Provider, reimburse Service Provider for such fees, costs or expenses reasonably incurred by Service Provider upon provision of invoices delivered in accordance with Section 3.04 or other reasonable evidence that such amounts were incurred. Notwithstanding the foregoing, during the term of this Agreement, Service Provider’s employees will remain employees of Service Provider or its Affiliates and shall not be deemed to be employees of Buyer or any of its Affiliates, and Service Provider or its applicable Affiliate will be responsible for the payment and provision of all wages, bonuses, commissions, employee benefits, and worker’s compensation, and the withholding and payment of applicable Taxes with respect to such employment.

Section 3.03 Required Consents . Notwithstanding anything to the contrary in this Agreement, this Agreement shall not constitute an agreement to provide any Transition Service to the extent the provision of such Transition Service in accordance with this Agreement would require any consent, waiver, permit, license or sublicense of any third party (collectively, the “ Required Consents ”) unless and until such Required Consents shall have been obtained. With respect to any Required Consents not obtained prior to the date of this Agreement, from and after the date hereof, Service Provider shall use commercially reasonable efforts (but without any payment of money or other transfer of value by Service Provider to any third party of more than the lesser of (x) $10,000.00 or (y) 25% of the annual value of the applicable Assigned Contract (for which such Transition Services are commissioned) to obtain such Required Consents and Buyer shall provide such reasonable cooperation as may be requested by Service Provider in connection with its pursuit of such Required Consents. Service Provider shall use all commercially reasonable efforts to mitigate the value of any break, transfer, or similar fee which may be charged by a third party in respect of each such Required Consent and shall also keep

Buyer timely informed (and shall regularly consult with Buyer) regarding the status of any discussions with any third party that relate to the seeking of any such Required Consent. To the extent Service Provider can obtain a Required Consent by adding Buyer or its Affiliates or Subsidiaries to a list of approved or authorized users of software, hardware or services used to provide Transition Services hereunder, Buyer hereby consents to Service Provider acting as its agent to prepare such documents and Buyer agrees to reasonably cooperate with Service Provider to execute such documents. If a sublicense, temporary assignment or signature on any software license or confidentiality agreements becomes necessary for Service Provider to be authorized to provide the Transition Services, Buyer also agrees to reasonably cooperate and execute such documents. The failure of Buyer to execute any of the documents referred to in this Section 3.03 shall relieve Service Provider of its duty to provide the portion of the Transition Services to which the Required Consent would have applied, unless such failure is a result of any requirement of Buyer to incur any cost or expense in connection with obtaining such Required Consent.

Section 3.04 Invoices . Service Provider may send Buyer invoices on a monthly basis (targeted for the fifteenth (15 th ) day of each month) for Transition Services provided under this Agreement during the prior month and for Service Provider’s reimbursable costs and expenses in connection therewith during the prior month as may be further set forth in Exhibit A. Buyer shall pay the amount of each invoice in immediately available funds within thirty (30) days after the date thereof. If any amounts due hereunder have not been received by the due date, the overdue amounts shall bear interest from the due date at the Interest Rate until received, and Buyer shall pay, as additional fees, all reasonable costs and expenses incurred by Service Provider in attempting to collect and collecting the amounts due under this Section 3.04 , including all reasonable attorneys’ fees and expenses. In the event Buyer disputes any amount set forth in an invoice received from Service Provider under this Agreement, Buyer will deliver a written statement to Service Provider not later than ten (10) days prior to the date on which payment is due in respect of such invoice. Such statement will describe all disputed items and provide a reasonably detailed description of Buyer’s dispute. Amounts not disputed by Buyer shall be deemed accepted and shall be paid in accordance with this Section 3.04 . The Parties shall seek to resolve all disputes in good faith. Service Provider shall continue performing the Transition Services in accordance with this Agreement during the pendency of any dispute.

Section 3.05 Taxes . Buyer shall pay all Taxes arising as a result of or in connection with the provision of the Transition Services or the performance of the obligations under this Agreement (other than income Taxes of Service Provider, its Affiliates or any third-party provider).

ARTICLE IV.

FORCE MAJEURE

Section 4.01 Force Majeure . Service Provider’s performance of the Transition Services shall be the pendency of events beyond the control of Service Provider, including acts of God, acts, regulations or decrees of any Governmental Authority, war, acts of terrorism, embargoes, strikes or industrial disputes (to the extent having been beyond the control of Service Provider) or shortages of fuel, other shortages of labor or supply of materials, accident, fire, explosion, flood, nuclear disaster or riot (each, a “ Force Majeure Event ”). Service Provider will provide

written notice to Buyer as soon as reasonably practicable following the occurrence of any Force Majeure Event stating the date and the extent of the suspension of Transition Services caused by such Force Majeure Event and the nature of the Force Majeure Event. Service Provider will resume performance of the Transition Services as soon as reasonably practicable after the Force Majeure Event no longer affects Service Provider’s performance. Neither Party shall be liable for any nonperformance or delay in performance of its obligations under this Agreement when such nonperformance or delay is due to a Force Majeure Event.

ARTICLE V.

TERM AND TERMINATION

Section 5.01 Term . This Agreement is effective as of the date hereof and, unless earlier terminated pursuant to the terms hereof, shall continue in effect until August 31, 2018 (the “ Service Termination Date ”); provided that in the event Exhibit A sets forth any earlier date for termination of a particular Transition Service, the Service Termination Date with respect to such Transition Service shall be such earlier date. If Buyer desires for Service Provider to continue to perform any of the Transition Services after the Service Termination Date (or any earlier date for termination of a particular Transition Service) and Service Provider agrees in writing to continue providing such services, the Parties shall negotiate in good faith to determine an amount that compensates Service Provider for its reasonable costs for such performance. Any Transition Services so performed by Service Provider pursuant to the immediately preceding sentence shall continue to constitute Transition Services hereunder and be subject to all of the provisions of this Agreement for the duration of any agreed upon extension period.

Section 5.02 Termination of Entire Agreement . Each Party shall have the right to terminate this Agreement effective upon delivery of written notice to the other Party if: (a) the other Party makes an assignment for the benefit of creditors, or becomes bankrupt or insolvent, or is petitioned into bankruptcy, or takes advantage of any state, federal or foreign bankruptcy or insolvency act, or if a receiver or receiver/manager is appointed for all or any substantial part of its property and business and such receiver or receiver/manager remains undischarged for a period of thirty (30) days; or (b) the other Party materially defaults in the performance of any of its covenants or obligations contained in this Agreement and such default is not remedied within thirty (30) days after written notice of such default by the non-breaching Party.

Section 5.03 Termination or Suspension of Transition Services . Service Provider’s obligations to perform Transition Services under this Agreement are conditioned upon the Buyer Parties complying in all material respects at all times with their covenants and obligations in this Agreement. If at any time the Buyer Parties shall not be in material compliance with their covenants and obligations hereunder, Service Provider may terminate or suspend performance of any Transition Services materially adversely affected by or related to such noncompliance.

Section 5.04 Procedures upon Termination . Following any termination of this Agreement in whole or in part, each Party shall provide reasonable cooperation to the other Party in connection with the cessation of the provision of Transition Services hereunder to minimize disruption to the Transferred Products; provided that this Section 5.04 shall not require Service Provider to provide Transition Services beyond the termination of such Transition Service or this

Agreement or to incur any unreimbursed costs or expenses. Termination of this Agreement shall not affect any right to payment for Transition Services provided prior to termination.

Section 5.05 Effect of Termination . In the event this Agreement is terminated pursuant to this Article V , this Agreement shall thereupon become null and void and of no further force and effect, except that the following Articles and Sections shall survive termination of this Agreement: Article III (Compensation; Billing), Section 5.04 (Procedures upon Termination), this Section 5.05 , Article VI (Liability and Indemnification), Section 7.01 (Confidentiality), and Article VIII (Miscellaneous).

ARTICLE VI.

LIABILITY AND INDEMNIFICATION

Section 6.01 Liability . Service Provider and its Affiliates shall incur no liability whatsoever, whether in negligence, breach of contract or otherwise, for any Damages suffered or incurred by the Transferred Products, Buyer or its Affiliates or any other Person arising out of or in connection with the rendering of a Transition Service or any failure to provide a Transition Service, except to the extent such liability arises out of Service Provider’s willful misconduct or negligence.

Section 6.02 Disclaimer . SERVICE PROVIDER’S WARRANTIES, CONDITIONS, REPRESENTATIONS, OBLIGATIONS AND LIABILITIES, AND THE REMEDIES OF BUYER, SET FORTH IN THIS AGREEMENT AND THE TRANSACTION AGREEMENT ARE EXCLUSIVE AND IN SUBSTITUTION FOR, AND BUYER HEREBY WAIVES, RELEASES AND RENOUNCES, ALL OTHER WARRANTIES, OBLIGATIONS AND LIABILITIES OF SERVICE PROVIDER, AND ANY OTHER RIGHTS, CLAIMS AND REMEDIES OF BUYER, AGAINST SERVICE PROVIDER OR ANY OF ITS AFFILIATES OR REPRESENTATIVES, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY NONCONFORMANCE OR DEFECT IN ANY OF THE SERVICES, TRAINING, DATA, DOCUMENTATION OR OTHER THINGS PROVIDED UNDER THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO:

(a) ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS; OR

(b) ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE.

Section 6.03 Third-Party Providers . Without limiting the foregoing, Service Provider makes no representation or warranty with respect to any Transition Services to be provided by any third-party provider with respect to the Transferred Products as provided in this Agreement, including no representation as to the rights of such third-party providers to any tangible or intangible property used by such third-party providers in providing the Transition Services.

ARTICLE VII.

COVENANTS AND AGREEMENTS

Section 7.01 Confidentiality.

(a) Without limiting the provisions of the Transaction Agreement and the other Transaction Agreements and except as may be permitted by Section 9.04 of the Transaction Agreement, each Party (i) shall (and shall cause its Representatives and Affiliates to, and for the avoidance of doubt and without limitation Service Provider shall cause any outsource provider or third party providing Transition Services under this Agreement to) treat and hold as confidential all proprietary, confidential and/or trade secret information (“ Confidential Information ”) that relates to and is disclosed by one Party or its Affiliates (the “ Originating Party ”) to the other Party or its Affiliates (the “ Receiving Party ”) in connection with the performance of its obligations under this Agreement, (ii) shall not (and shall cause its Representatives and Affiliates not to) disclose to any Person, publish or make publicly available any Confidential Information received from the Originating Party, and (iii) shall use Confidential Information received from the Originating Party solely in connection with the matters contemplated under this Agreement or the other Transaction Agreements and, to the extent that Buyer or any of its Affiliates is the Receiving Party, solely to the extent necessary in connection with the operation of or performance under the Transferred Products. In the event the Receiving Party is requested or required (by oral or written request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand or similar process or by applicable Law) to disclose any Confidential Information of the Originating Party, the Receiving Party shall, to the extent legally permitted, notify the Originating Party promptly of the request or requirement so that the Originating Party, at its expense, may seek an appropriate protective order or waive compliance with this Section 7.01 . If, in the absence of a protective order or receipt of a waiver hereunder, the Receiving Party is, on the advice of counsel, required to disclose such Confidential Information, the Receiving Party may disclose such Confidential Information; provided that the Receiving Party shall use commercially reasonable efforts to obtain reliable assurance that confidential treatment will be accorded to such Confidential Information. Notwithstanding the foregoing, the provisions of this Section 7.01 shall not apply to Confidential Information that (A) is or becomes publicly available other than as a result of a disclosure by the Receiving Party in violation of this Agreement, (B) is or becomes available to the Receiving Party on a non-confidential basis from a source that, to the Receiving Party’s knowledge, is not prohibited from disclosing such information by a legal, contractual or fiduciary obligation or (C) is or has been independently developed by the Receiving Party.

(b) Confidential Information shall remain the property of the Originating Party. Except for the rights expressly granted under this Agreement or the other Transaction Agreements, neither this Agreement nor disclosure of Confidential Information hereunder shall be construed as granting any right or license to or under any Confidential Information or any copyrights, inventions, patents or other intellectual property now or hereafter owned or controlled by the Originating Party.

(c) Upon expiration or termination of this Agreement and unless instructed to do otherwise by the Originating Party, the Receiving Party shall use commercially reasonable efforts to promptly destroy all of the Confidential Information, if any, received from the

Originating Party pursuant to this Agreement, except the foregoing obligation to destroy Confidential Information shall not apply where the Receiving Party is continuing to use the Confidential Information in accordance with Sections 7.01(a)(ii) and (iii) of this Agreement and except for records retained pursuant to document retention policies or automatic computer back-up or archival systems. In the event that information not related to the Transferred Products is discovered by Buyer or its Affiliates, Buyer shall contact Service Provider for instructions as to the disposition of that information and protect that information at the level of “Confidential Information” in accordance with Section 7.01(a) .

Section 7.02 Protection of Systems . Buyer agrees that, to the extent Service Provider provides access to any of its or its Affiliates’ Systems to Buyer or Buyer’s Affiliates, such access shall be limited to access in connection with use or receipt of the Transition Services. Buyer shall not, and shall cause its Affiliates not to, access any data, documents, drawings or computer software, other than to such extent as may be required in order to use or receive the benefit of the Transition Services, which access shall be in accordance with Section 2.02(a) . This restriction applies to viewing, approving and modifying of data. Service Provider agrees not to, and to cause its Affiliates not to, access or manipulate Buyer’s data without Buyer’s written permission during the term of this Agreement, except as required to perform Service Provider’s obligations under this Agreement or as agreed to among the Parties.

ARTICLE VIII.

MISCELLANEOUS

Section 8.01 Notices . All notices and other communications under or by reason of this Agreement shall be in writing and shall be deemed to have been duly given or made (a) when personally delivered, (b) when delivered by facsimile or e-mail transmission with receipt confirmed (followed by delivery of an original by another delivery method provided for in this Section 8.01 ) if delivered during business hours of the recipient, otherwise on the next Business Day or (c) one (1) Business Day after deposit with overnight courier service, in each case to the addresses, facsimile number or e-mail addresses and attention parties indicated below (or such other address, facsimile number, e-mail address or attention party as the recipient party has specified by prior notice given to the sending party in accordance with this Section 8.01 ):


If to Service Provider, to:	c/o QTS Realty Trust, Inc.
	12851 Foster Street
	Overland Park, KS 66213
	Attention: Legal Department
	Facsimile: 877-772-5290
	E-mail: legal@qtsdatacenters.com

If to Buyer, to:	General Datatech, L.P.
	999 Metro Media Place
	Dallas, Texas 75247
	Attention: GDT Legal Department
	E-mail: legal@gdt.com

Section 8.02 Governing Law . This Agreement, and any Action that may be based upon, arise out of or relate or be incidental to any transaction contemplated by this Agreement, the negotiation, execution, performance or consummation of any of the foregoing or the inducement of any Party to enter into any of the foregoing, whether for breach of contract, tortious conduct or otherwise, and whether now existing or hereafter arising, will be exclusively governed by and construed and enforced in accordance with the internal Laws of the State of Delaware, without giving effect to any Law or rule that would cause the Laws of any jurisdiction other than the State of Delaware to be applied. Service Provider shall cause the Service Provider Indemnified Parties, and Buyer shall cause the Buyer Indemnified Parties, to comply with the foregoing as though such Indemnified Parties were a party to this Agreement.

Section 8.03 Other Provisions . All provisions of Article IX of the Transaction Agreement (except for Sections 9.03 (Notices), 9.04 (Public Announcements), 9.11 (Governing Law), 9.15 (Remedies; Specific Performance), and 9.18 (Disclosure Letter and Exhibits) thereof) are incorporated by reference, mutatis mutandis, as terms and conditions of this Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;

SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed and delivered on the date first above written by their respective duly authorized officers.

	SERVICE PROVIDER:

	Quality Technology Services Holding, LLC

	By	/s/ Chad L. Williams
		Name: Chad L. Williams
		Title: President and Chief Executive Officer


	BUYER:

	General Datatech, L.P.

	By: Gendata, L.L.C., its general partner

	By	/s/ John W. Roberts
		Name: John W. Roberts
		Title: President

[Signature Page to Transition Services Agreement]

CONFIDENTIAL

EXHIBIT A

TRANSITION SERVICES

Service

Service Provider shall, on behalf of the Buyer Parties, provide such support and services to the Buyer Parties as maybe requested by the Buyer Parties in order to satisfy and discharge the Buyer Parties’ obligations under the Applicable Customer Contract; provided that such support and services may only be a service of a type and nature performed by Service Provider or its Affiliates with respect to the Transferred Products prior to the applicable Transfer.

Applicable Customer Contract

Each Current Customer Contract that has been Transferred by Service Provider or its Affiliates to the Buyer Parties pursuant to the Transaction Agreement, upon and following the Transfer Effective Time with respect to such Current Customer Contract.

Term of Service

From the date of Transfer of each Applicable Customer Contract until the Cutoff Date.

Compensation

 60% of Recognized Revenue (as defined in the Channel Fee Agreement) received and collected during each calendar month (or portion thereof) under each Applicable Customer Contract after its Transfer to Buyer (i.e., calculated using the same denominator as for the Channel Fee under the Channel Fee Agreement).

 Payable on a monthly basis 30 days after the end of each month (i.e., on each Channel Fee payment date).

 For the avoidance of doubt:

o 20% of such Recognized Revenue will be retained by Buyer; and

o 20% of such Recognized Revenue separately will be paid by Buyer to Service Provider as the monthly “Channel Fee” under the Channel Fee Agreement.

For the avoidance of doubt, nothing herein shall limit or modify the Channel Fee Agreement.

A-1

Exhibit 10.5

AMENDMENT

THIS AMENDMENT (the “ Amendment ”) is dated and effective June 5, 2018 (the “ Effective Date ”), by and among QTS Realty Trust, Inc., a Maryland corporation (together with any successor general partner of the Operating Partnership, the “ Company ”), QualityTech, LP, a Delaware limited partnership (the “ Operating Partnership ”), Quality Technology Services, LLC, a Delaware limited liability company and an affiliate of the Company (the “ Employer ”), and William H. Schafer, an individual (“ Executive ”) (Executive, the Company, the Operating Partnership, and the Employer, collectively, the “ Parties ”), with respect to the following facts and circumstances:

RECITALS:

WHEREAS , Executive is currently employed as the Company’s Executive Vice President — Finance and Accounting, pursuant to an Employment Agreement between Executive and the Company, the Operating Partnership and the Employer, effective April 3, 2017 (the “ Employment Agreement ”);

WHEREAS , the Parties desire to amend the Employment Agreement through this Amendment;

WHEREAS , the Parties each agree that nothing in this Amendment is a breach of the Employment Agreement; and

WHEREAS , the Parties disagree about whether Section 4.1.3 applies to the current facts and situation among the Parties, however the Parties agree that a modification to the terms of that provision are appropriate in order to allow the Parties to discuss Executive’s compensation.

NOW, THEREFORE , in consideration of the foregoing, and of the respective covenants and agreements set forth below, the Parties hereto agree as follows:

1. Effective as of June 5, 2018, the last sentence of Section 4.1.3 (titled “Good Reason”) of the Employment Agreement is amended by replacing the phrase “ninety (90) days” with the phrase “one hundred twenty-eight (128) days”.

2. This Amendment may be executed in counterparts, each of which will be deemed an original but all of which together will constitute one and the same instrument. Counterpart signature pages to this Amendment transmitted by facsimile transmission, by electronic mail in portable document format (.pdf), or by any other electronic means intended to preserve the original appearance of a document, will have the same effect as physical delivery of the paper document bearing an original signature.

Signature page follows.

IN WITNESS WHEREOF, the Parties have executed this Amendment as of the date set forth above.


	COMPANY

	QTS Realty Trust, Inc.

	By:	/s/ Shirley E. Goza
		Name: Shirley E. Goza
		Title: Vice President, General Counsel & Secretary

	OPERATING PARTNERSHIP

	QualityTech, LP

	By:	QTS Realty Trust, Inc., its general partner

	By:	/s/ Shirley E. Goza
		Name: Shirley E. Goza
		Title: Vice President, General Counsel & Secretary

	EMPLOYER

	Quality Technology Services, LLC

	By:	/s/ Shirley E. Goza
		Name: Shirley E. Goza
		Title: Vice President, General Counsel & Secretary

	EXECUTIVE:

	/s/ William H. Shafer
	William H. Shafer

Exhibit 10.6

TRANSITION AGREEMENT

RELEASE OF ALL CLAIMS

(Confidential)

Daniel T. Bennewitz And

QTS Realty Trust, Inc., QualityTech, LP, Quality Technology Services, LLC and all related companies, and all related companies

Dated: May 3, 2018

TRANSITION AGREEMENT AND RELEASE OF ALL CLAIMS

The parties to this Transition Agreement and Release of Claims (“Agreement”) are Daniel T. Bennewitz (“Bennewitz”) and QTS Realty Trust, Inc., QualityTech, LP, Quality Technology Services, LLC, and its predecessors, successors, assigns, officers, directors, agents, employees and all affiliated, parent or subsidiary companies or divisions and all related companies, their predecessors, successors, assigns, officers, directors, agents, employees and all affiliated, parent or subsidiary companies or divisions (collectively, the “Company”). Reference is made to the Employment Agreement between QTS Realty Trust, Inc. and Bennewitz dated April 11, 2017, as amended June 23, 2017 (attached hereto as Attachment A; collectively, the “Employment Agreement”).

A. Consideration.

Bennewitz shall retire from the Company on December 31, 2018 (“Retirement Date”). The parties agree that the Chief Executive Officer (“CEO”) in his sole discretion, may determine that Bennewitz will leave the Company’s employ prior to the Retirement Date (“Exit Date”), but any such Exit Date shall not accelerate the Retirement Date. Bennewitz agrees also that, prior to any Exit Date, the CEO may ask Bennewitz to step down from his position but to continue in the Company’s employ until as late as the Retirement Date to work on select projects, in a non-executive capacity but consistent with Bennewitz’s experience, as may be assigned by the CEO and in connection therewith to serve in an advisory role and/or maintain certain responsibilities and which shall not accelerate the Retirement Date (“Transition”). The Retirement Date shall be considered the date of termination of his employment for purposes of salary, annual bonus and eligibility to participate in and coverage under all employee benefit plans and programs sponsored or maintained by the Company and for purposes of all outstanding equity incentive grants (see below). Bennewitz remains subject to termination for Cause (as defined in the Employment Agreement) prior to the Retirement Date.

Bennewitz agrees that until his Exit Date ( or earlier Transition in which his duties cease to include one of more of the following performance requirements), he shall use best efforts to deliver on certain performance metrics for fiscal year 2018 for the Company as defined separately.

In consideration for executing this Agreement and not revoking the same, Bennewitz shall be entitled to receive the following payments and benefits, provided he continues in employment through the Exit Date and is not terminated for Cause prior to such date:

 If not previously vested in full, any stock options or Restricted Stock granted to Bennewitz outstanding as of immediately prior to the Retirement Date shall continue to vest on the terms set forth in the grant documents (“Complete Vest Date”). Further, Bennewitz shall have ninety (90) days from the Complete Vest Date in which to exercise any stock options that he holds.

 Payment of salary and benefits participation through December 31, 2018, regardless of an earlier Exit Date, not for Cause, occurring prior to that date.

The foregoing payments and benefits are subject to withholding for applicable taxes and other legally required deductions as required by law.

In exchange for the payments and benefits promised to Bennewitz above, Bennewitz agrees as follows:

 On or before his Exit Date, whenever requested, Bennewitz shall return all Company property, including Bennewitz’s laptop computer in a condition reasonably acceptable to the Company.

Bennewitz also will certify to the Company that he has deleted any Company digital files that he may have stored on a personal device (smartphone, tablet or home computer).

 The term of Bennewitz’s non-compete as set forth in his Employment Agreement shall be extended one year beyond the Complete Vest Date.

 As of the date of execution of this Agreement, Bennewitz shall waive his right to terminate his employment for Good Reason after such date.

In consideration for re-executing this Agreement on the Exit Date and not revoking the same:

 Bennewitz shall be eligible to receive a bonus in respect of the 2018 calendar year (subject to the achievement of Company financial performance objectives applicable to senior executives), on the same terms as apply to other executives that remain with the Company.

Bennewitz acknowledges that he is not otherwise entitled to the consideration herein, and is receiving the consideration only in exchange for the execution of this Agreement.

The Company will pay Bennewitz’s reasonable professional fees incurred to negotiate and prepare this Agreement, not to exceed $10,000.00.

B. Release of Claims.

Bennewitz releases and forever discharges Company from all claims of any kind whatsoever now existing that in any way relate to the employment of Bennewitz by or for the benefit of the Company up to the date of the execution and re-execution of this Agreement. The claims released and discharged include, but are not limited to, all claims asserted, or which could have been asserted, under federal, state, or local constitution, law, regulation, ordinance, contract (including the Employment Agreement) or common law that in any way relate to employment, discrimination or harassment in employment, termination of employment, or retaliation with respect to the employment, including but not limited to, claims pursuant to:

1. Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. 200e et seq.;

2. The Americans with Disabilities Act, as amended, 42 U.S.C. 12101, et seq.;

3. The Family and Medical Leave Act, as amended, 29 U.S.C. 2601, et seq.;

4. The Age Discrimination in Employment Act, as amended, 29 U.S.C. 621, et seq.;

5. Any state anti-discrimination statutes;

6. Any and all claims for alleged breach of an express or implied contract;

7. Any and all tort claims, including but not limited to alleged retaliation for assertion of workers’ compensation rights;

8. Any and all claims under workers’ compensation law; and

9. Any and all claims for attorneys’ fees.

The above provisions of this paragraph B to the contrary notwithstanding, Bennewitz does not release any claims he may have (i) for indemnification under the Employment Agreement, Company charter and by-laws and applicable law or for coverage under the Company directors and officers liability insurance coverage (including Side A coverage); (ii) all accrued and vested benefits under the Company employee benefit plans in which Bennewitz is a participant; and (iii) that cannot be released or waived under applicable law.

C. Covenant Not to Sue.

Bennewitz agrees not to initiate any legal proceeding relating to any of the matters released herein.

D. Future Communications.

Company and Bennewitz each agree not to disparage or make negative comments about the other to any third party. “Company” for this purpose shall refer to any employee in an executive management position with the Company.

E. Nondisclosure of Confidential Information.

Bennewitz acknowledges that during his employment with Company he had access to a variety of confidential information, such as records, lists, knowledge of Company’s customers, suppliers, methods of operations, processes, designs, trade secrets, pricing methods, and financial information. Bennewitz understands that Company considers all of this information confidential and proprietary to Company. Bennewitz agrees not to use or disclose to any person or entity any confidential information he acquired during the course of his employment with Company. Bennewitz agrees not to remove from the premises any of Company’s books, records, customer lists, designs, or other documents or materials. Bennewitz will return to Company all such materials that he has in his possession.

F. Permitted Disclosure.

Nothing in this Agreement (including without limitation, Sections B, C, D, E, G, H or I), in any other agreement between Bennewitz and the Company (including without limitation the Employee/Independent Contractor Proprietary Information, Confidentiality, Inventions and Non-Solicitation Agreement), or in any policy of the Company, restricts or prohibits Bennewitz from reporting possible violations of law or regulation to, or from filing a claim or assisting with an investigation directly with, a self-regulatory authority or a government agency or entity, including without limitation the U.S. Equal Employment Opportunity Commission, the Department of Labor, the National Labor Relations Board, the Department of Justice, the Securities and Exchange Commission, the Congress, and any agency Inspector General, or from making other disclosures that are protected under the whistleblower provisions of state or federal law or regulation, whether Bennewitz does so as a result of Bennewitz initiating communications directly with or responding to any inquiries from such government agency of entity, and nothing limits Bennewitz’s right to receive any whistleblower award provided for under such laws or regulations. Bennewitz does not need the prior authorization of the Company to engage in such conduct, and Bennewitz does not need to notify the Company Bennewitz has engaged in such conduct. In addition, such conduct shall not be deemed a breach of any provision of this Agreement or any other agreement with or policy of the Company. For the avoidance of doubt, nothing in this Section F is intended to supersede Section 5.9 of the Employment Agreement.

G. Confidentiality.

This Agreement may be specifically enforced and may be used as evidence in an action relating to the breach of this Agreement, but otherwise Bennewitz shall keep this Agreement confidential, until and to the extent not publicly disclosed by the Company, and shall not disclose the existence of this Agreement or its terms to any third parties, except (1) as required by process of law, and (2) to his attorney, financial advisor, and/or significant other, provided that such third party is advised of the Confidentiality Agreement and agrees not to disclose this Agreement or its terms to any other party.

H. Cooperation.

Bennewitz agrees to reasonably cooperate (i) with the Company in the defense of any legal matter involving any matter that arose during Bennewitz employment in the business of the Company, and (ii) with all government authorities on matters pertaining to any investigation, litigation or administrative proceeding pertaining to the business of the Company. The Company will reimburse Bennewitz for reasonable travel and out of pocket expenses incurred by Bennewitz in providing such cooperation.

I. Return of Consideration.

Bennewitz agrees that, if he attempts to avoid or set aside any of the terms of this Agreement, he will first return to Company an amount equal to the consideration set forth in paragraph A of this Agreement.

J. No Admission of Liability.

Bennewitz acknowledges that the tender of this consideration is not meant to be construed as an admission of liability or wrongdoing on behalf of the Company, and that any such liability or wrongdoing is expressly denied by the Company.

K. Consultation with Attorney.

Bennewitz acknowledges and agrees that he has been advised in writing to consult with an attorney prior to executing this Agreement.

L. Time to Consider.

Bennewitz acknowledges and agrees that he has been provided a period of twenty-one (21) days within which to consider this Agreement prior to its execution and re-execution. Bennewitz acknowledges and agrees that no material changes have been made to this Agreement since he first received it.

M. Revocation Period.

For a period of seven (7) days following the date on which Bennewitz executes this Agreement, he may revoke this Agreement (“Revocation Period”), by sending his written, signed and dated request to revoke the Agreement by certified mail to Shirley Goza, at Quality Technology Services, LLC, 12851 Foster Street, Overland Park, KS 66213, and simultaneously providing verbal notification of his revocation request to Shirley Goza 913.312.5503 within forty-five (45) days of execution of this Agreement. The Agreement shall not become effective or enforceable until the applicable Revocation Period has expired.

N. Severability of Provisions.

The provisions of this Agreement shall be deemed severable, and the invalidity or unenforceability of any one or more of its provisions shall not affect the validity or enforceability of any of the other provisions.

O. No Other Representations.

Bennewitz acknowledges that no promise or agreement not expressed in this Agreement has been made; that this Agreement is not executed or re-executed in reliance upon any statement or representation made by Company or by any person employed by or representing Company other than the statements

contained in the Agreement itself; and that the terms of this Agreement are contractual and not merely recitals.

P. Choice of Law.

The enforcement of this Agreement shall be governed and interpreted by and under the laws of the State of Kansas whether or not any party is or may hereafter be a resident of another state.

Q. Employment Agreement.

Bennewitz acknowledges and agrees that the terms of the Employment Agreement remain in full force and effect except, other than Sections 4.1.3, 4.3.2, and 4.3.4 as modified in paragraph A above.

THE FOREGOING TRANSITION AGREEMENT AND RELEASE OF ALL CLAIMS HAS BEEN READ AND FULLY UNDERSTOOD BEFORE THE SIGNING OF THIS AGREEMENT.


	/s/ Daniel T. Bennewitz
	Daniel T. Bennewitz

	Dated this 3 rd of May


	QTS Realty Trust, Inc. QualityTech, LP
	Quality Technology Services, LLC

	By:	/s/ Chad L. Williams
	Chad L. Williams
	Title: Chief Executive Officer

	Dated this 3 rd of May

RE-EXECUTE ON THE RETIREMENT DATE

THE FOREGOING TRANSITION AGREEMENT AND RELEASE OF ALL CLAIMS HAS BEEN READ AND FULLY UNDERSTOOD BEFORE THE SIGNING OF THIS AGREEMENT.



	Daniel T. Bennewitz

	Dated this



	QTS Realty Trust, Inc. QualityTech, LP
	Quality Technology Services, LLC

	By:

	Title: Chief Executive Officer

	Dated

Exhibit 10.7

THIRD AMENDMENT

THIS THIRD AMENDMENT (the “ Amendment ”) is dated and effective June 29, 2018 (the “ Effective Date ”), by and among QTS Realty Trust, Inc., a Maryland corporation (together with any successor general partner of the Operating Partnership, the “ Company ”), QualityTech, LP, a Delaware limited partnership (the “ Operating Partnership ”), Quality Technology Services, LLC, a Delaware limited liability company and an affiliate of the Company (the “ Employer ”), and William H. Schafer, an individual (“ Executive ”) (Executive, the Company, the Operating Partnership, and the Employer, collectively, the “ Parties ”), with respect to the following facts and circumstances:

RECITALS:

WHEREAS , Executive is currently employed as the Company’s Executive Vice President –Finance and Accounting, pursuant to an Employment Agreement between Executive and the Company, the Operating Partnership and the Employer, effective April 3, 2017, as amended effective June 5, 2018 (the “ Employment Agreement ”);

WHEREAS , the Parties desire to amend the Employment Agreement through this Amendment;

WHEREAS , the Parties each agree that nothing in this Amendment is a breach of the Employment Agreement; and

NOW, THEREFORE , in consideration of the foregoing, and of the respective covenants and agreements set forth below, the Parties hereto agree as follows:

1. Effective as of June 29, 2018, the last sentence of Section 4.1.3 (titled “Good Reason”) of the Employment Agreement is amended by replacing the phrase “one hundred twenty-eight (128) days” with the phrase “one hundred fifty-two (152) days”.

2. Effective as of June 29, 2018, the following sentence is added to the end of Section 4.1.3: “For purposes of clarity, the Company and Executive agree that Executive shall have until August 7, 2018 to give notice under this Section 4.1.3 referencing the March 8, 2018 letter to Executive from Steve Bloom, Chief People Officer of the Company.”

3. This Amendment may be executed in counterparts, each of which will be deemed an original but all of which together will constitute one and the same instrument. Counterpart signature pages to this Amendment transmitted by facsimile transmission, by electronic mail in portable document format (.pdf), or by any other electronic means intended to preserve the original appearance of a document, will have the same effect as physical delivery of the paper document bearing an original signature.

Signature page follows.

IN WITNESS WHEREOF, the Parties have executed this Amendment as of the date set forth above.


	COMPANY

	QTS Realty Trust, Inc.

	By:	/s/ Shirley E. Goza
		Name: Shirley E. Goza
		Title: General Counsel & Secretary

	OPERATING PARTNERSHIP

	QualityTech, LP

	By:	QTS Realty Trust, Inc., its general partner

	By:	/s/ Shirley E. Goza
		Name: Shirley E. Goza
		Title: VP, General Counsel & Secretary

	EMPLOYER

	Quality Technology Services, LLC

	By:	/s/ Shirley E. Goza
		Name: Shirley E. Goza
		Title: General Counsel & Secretary

	EXECUTIVE:

	/s/ William H. Shafer
	William H. Shafer

Exhibit 31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Chad L. Williams, certify that:

I have reviewed this Quarterly Report on Form 10-Q of QTS Realty Trust, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

7
Date: August 3, 2018
		/s/ Chad L. Williams
		Chad L. Williams
		Chairman and Chief Executive Officer

Exhibit 31.2

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jeffrey H. Berson, certify that:

I have reviewed this Quarterly Report on Form 10-Q of QTS Realty Trust, Inc.;

(a)

(b)

(c)

(d)

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: August 3, 2018
		/s/ Jeffrey H. Berson
		Jeffrey H. Berson
		Chief Financial Officer

Exhibit 31.3

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Chad L. Williams, certify that:

I have reviewed this Quarterly Report on Form 10-Q of QualityTech, LP;

(a)

(b)

(c)

(d)

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: August 3, 2018
	/s/ Chad L. Williams
	Chad L. Williams
	Chairman and Chief Executive Officer

Exhibit 31.4

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jeffrey H. Berson, certify that:

I have reviewed this Quarterly Report on Form 10-Q of QualityTech, LP;

(a)

(b)

(c)

(d)

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

7
Date: August 3, 2018
	/s/ Jeffrey H. Berson
	Jeffrey H. Berson
	Chief Financial Officer

Exhibit 32.1

Certification Pursuant To

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of QTS Realty Trust, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Chad L. Williams, Chairman and Chief Executive Officer of the Company, and I, Jeffrey H. Berson, Chief Financial Officer of the Company, certify, to our knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

7
Date: August 3, 2018
	/s/ Chad L. Williams
	Chad L. Williams
	Chairman and Chief Executive Officer

	/s/ Jeffrey H. Berson
	Jeffrey H. Berson
	Chief Financial Officer

Exhibit 32.2

Certification Pursuant To

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of QualityTech, LP (the “Company”) on Form 10-Q for the period ended June 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Chad L. Williams, Chairman and Chief Executive Officer of the Company, and I, Jeffrey H. Berson, Chief Financial Officer of the Company, certify, to our knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date: August 3, 2018
	/s/ Chad L. Williams
	Chad L. Williams
	Chairman and Chief Executive Officer

	/s/ Jeffrey H. Berson
	Jeffrey H. Berson
	Chief Financial Officer