IPO Preview: QTS Realty Trust

| About: QTS Realty (QTS)

Based in Overland Park, KS QTS Realty Trust (NYSE:QTS) scheduled a $356 million IPO with a market capitalization of $772 million at a price range mid-point of $28.5 for Wednesday, October 9, 2013.

Seven IPOs are scheduled for this week. The full IPO calendar can be found at IPOpremium.

S-11A filed September 26, 3013

Manager, Joint Managers: Goldman; Jefferies; BofA Merrill; Deutsche; KeyBanc Capital; Morgan Stanley
Co-Managers: J.P. Morgan; Stifel


Data center REIT QTS is a leading owner, developer and operator of state-of-the-art, carrier-neutral, multi-tenant data centers.


QTS set its IPO pricing in comparison with the two largest data center REIT competitors.

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

annualizing June 6 mos

Cap (MM)






QTS Realty Trust







Digital Realty Trust (NYSE:DLR)







DuPont Fabros Tech (NYSE:DFT)







Click to enlarge


But the stocks of the two biggest competitors have not done well this year.

YTD: -20% DLR; +3% DFT

Last 5 days (as of Oct 3): -3.5% DLR; -5-5% DFT


Data center REIT stocks are not strong right now. QTS's pricing is not especially attractive, so the rating is neutral to negative at the price range mid-point.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above:


QTS is a leading owner, developer and operator of state-of-the-art, carrier-neutral, multi-tenant data centers.

QTS believes that it owns and operates one of the largest portfolios of multi-tenant data centers in the United States, as measured by gross square footage, and has the capacity to almost triple leased raised floor without constructing or acquiring any new buildings.


Big technology companies such as Google (NASDAQ:GOOG) and Amazon (NASDAQ:AMZN) are more and more building their own data centers rather than renting space from data center REITs. Big technology companies potentially could compete with REITs by leasing out space to smaller businesses.

John Stewart, an analyst at Green Street Advisors said "It's fair to say that some of the largest users that are now building their own [data centers]… have definitely sucked some of the demand out of the room." Plus, by leasing out space to smaller businesses big companies could compete with data center REITs.

Distribution policy

QTS plans a pro rata initial distribution for the December 2013 quarter based on a distribution of $0.29 per share for a full quarter. On an annualized basis, this would be $1.16 per share, or an annual distribution rate of 4.1% at the price range mid-point of $20.

5% stockholders pre-IPO

GA QTS Interholdco, LLC, 54%
The members of GA QTS Interholdco, LLC are General Atlantic Partners 85, L.P., a Delaware limited partnership, or GAP 85, GAP Coinvestments III, LLC, a Delaware limited liability company, or GAPCO III, GAP Coinvestments IV, LLC, a Delaware limited liability company, or GAPCO IV, GAP Coinvestments CDA, L.P., a Delaware limited partnership, or GAPCO CDA, and GAPCO GmbH & Co., KG, a German limited partnership, or KG, and together with GAP 85, GAPCO III, GAPCO IV and GAPCO CDA, the GA Funds.

General Atlantic GenPar, L.P., a Delaware limited partnership, or GA Genpar, is the general partner of GAP 85. General Atlantic LLC, or GA LLC, is the general partner of GA GenPar. GA LLC is also the managing member of GAPCO III and GAPCO IV and the general partner of GAPCO CDA. GAPCO Management GmbH, a German limited liability company, or GmbH, is the general partner of KG.

Use of proceeds

QTS expects to net $321 million from its IPO. $295 million is allocated to repay debt. The balance is for ongoing development costs and general corporate purposes.

Amounts outstanding under our unsecured revolving credit facility bear interest at a variable rate equal to, at our election, LIBOR or a base rate, plus a spread that will range, depending upon our leverage ratio, from 2.10% to 2.85% for LIBOR rate loans or 1.10% to 1.85% for base rate loans, and bore interest at a rate of 2.55% as of June 30, 2013.

Disclaimer: This QTS IPO report is based on a reading and analysis of QTS's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.