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QTS Realty Trust Inc (NYSE:QTS)
Q3 2020 Earnings Call
Oct 27, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the QTS Realty Trust Third Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Stephen Douglas, Head of Investor Relations at QTS. Please go ahead, sir.

Stephen Douglas -- Head of Investor Relations & Executive Vice President, Finance

Thank you, operator. Hello, everyone, and welcome to QTS' third quarter 2020 earnings conference call. I'm Stephen Douglas, Head of Investor Relations at QTS, and I'm joined today by Chad Williams, our Chairman and Chief Executive Officer; and Jeff Berson, our Chief Financial Officer. We also are joined by additional members of our executive team, who will participate in Q&A.

Our earnings release and supplemental financial information are posted in the Investor Relations section of our website. We also provided slides and made them available with the webcast and on our website to make it easier to follow our presentation today.

Before we start, let me remind you that some information provided during this call may include forward-looking statements that are based on certain assumptions and are subject to a number of risks and uncertainties, including those related to the effects of the ongoing COVID-19 pandemic as described in our SEC filings, and actual future results may vary materially. Forward-looking statements in the press release that we issued yesterday, along with our remarks today, are made as of today and we undertake no duty to update them as actual events unfold.

Today's remarks also include certain non-GAAP measures, including NOI, FFO, operating FFO, adjusted operating FFO, monthly recurring revenue, ROIC, EBITDAre, and adjusted EBITDA. We refer you to our press release that we issued yesterday and our periodic reports furnished or filed with the SEC for further information regarding our use of these non-GAAP financial measures and a reconciliation of them to our GAAP results.

And now, I'll turn the call over to Chad.

Chad Williams -- Chairman and Chief Executive Officer

Thanks, Stephen. Hello, and welcome to QTS' third quarter 2020 earnings call. Turning to Slide 3, QTS delivered a strong performance during the quarter, including one of the strongest quarters of signed leasing activity and financial performance that gives us confidence to increase our financial outlook for the second time this year.

While the pandemic continues to impact nearly every industry to some extent, we have continued to see customer payment trends approaching more normalized levels and our development activity remains on track. Overall, customer demand remains robust and broad-based across our target customer verticals, supporting consistent growth in our key financial metrics.

During the third quarter, QTS generated total revenue and adjusted EBITDA of approximately $138 million and $76 million, respectively, representing year-over-year growth of approximately 10% and 21%.

Our adjusted EBITDA margin during the third quarter of 2020 was 55.2%, representing year-over-year margin expansion of approximately 490 basis points, which reflects continued operating leverage as our business scales, combined with the benefit we discussed last quarter from lower utility cost and corporate travel expenses as a result of the pandemic. The benefit we recognized from these expenses during the third quarter was approximately $1 million, which is consistent with the expectations we laid out last quarter for full-year cost benefit of approximately $2 million to $3 million.

For the third quarter, we delivered OFFO per share of $0.70, which represents approximately 8% year-over-year growth, reflecting our strong revenue and adjusted EBITDA performance in the quarter, combined with our continued focus on capital efficiency.

Moving on to Slide 4. Our performance in Q3 included contributions from each of our customer verticals, Hybrid Colocation, Hyperscale and Federal. We believe the diversity of our sources of growth provides the opportunity to maximize our risk-adjusted return on invested capital and reduces quarter-to-quarter volatility while enabling our business to grow effectively through a variety of industry and economic cycles.

Within these target customer verticals, we continue to successfully leverage our core differentiators to accelerate our market share. These differentiators include leadership and sustainability initiatives, cost-advantaged mega-scale infrastructure, operational maturity and track record in our Federal business, and our continued strong commitment to a fully digitized premium customer experience through QTS software-defined data center platform or SDP.

Our Hybrid Colocation business, which represents approximately two-thirds of our annual rent, is diversified across enterprise and Fortune 1000 customers from a variety of industry verticals and continues to deliver leasing performance quarter-to-quarter in a high-single-digit million range. This business is critical in driving higher return on invested capital across our platform with greater diversification and provides a healthy and consistent floor for leasing performance in any given quarter.

Our consistent Hybrid Colocation business is complemented by our Hyperscale and Federal business, which provides opportunities to participate in select strategic growth acceleration opportunities. Although these opportunities tend to have longer sales cycles than our hybrid business, the size in term of the Hyperscale and Federal business provides an attractive complementary value creation opportunity for QTS.

Next on Slide 5. During the third quarter, QTS signed new and modified leases representing approximately $26 million of incremental annualized rent, which represents the second highest leasing quarter in our Company's history. Our third quarter leasing performance was somewhat unique and [Phonetic] that we experienced an acceleration in leasing volume in both our Hyperscale and Federal business, combined with the continued steady performance within Hybrid Colocation.

Continued strength in our leasing performance resulted in backlog of signed but not yet commenced annualized recurring revenue of approximately $131 million at the end of the quarter, up approximately 17% quarter-over-quarter. Adjusted for the effects of revenue, which had been recognized via straight-line rent, our backlog as of the end of the third quarter was approximately $77 million, which is up 21% sequentially. This level of backlog provides strong visibility into our future performance and materially derisks our development activity. We remain pleased with the momentum we continue to see and build for our sales engine.

Over the past year, our trailing 12-month average net leasing has increased approximately 60%, while our booked but not billed backlog has grown by over 60%, which represents a tremendous performance considering the economic backdrop and further demonstrates the differentiation of QTS' platform. On top of the acceleration we experienced in our Hyperscale and Federal verticals during the third quarter, our Hybrid Colocation vertical continues to drive steady growth in our business. During the third quarter, pricing on installed base, which is more weighted toward our enterprise customers, remained healthy with the space renewal rates up 1.8%, which is consistent with our general expectations of rates increasing in the low-to-mid single digits.

In addition, year-to-date churn of 2.9% remains consistent with our expectations in full-year guidance of 3% to 5%, which was already reduced from our initial guidance for the year of 3% to 6%. Our churn during the quarter of 1.7% represented an increase quarter-over-quarter. However, this was largely driven by a timing as customers attrition in the first half of the year generally trended better than initially anticipated with some churn events getting pushed from the first half into the second half of the year.

Moving on to Slide 6. This quarter's leasing performance included several multi-megawatt deals signed in Hyperscale and the Federal business. Starting with Hyperscale, which contributed approximately 50% of our quarterly signed leasing activity, we signed several larger leases with existing strategic hyperscale tenants, further demonstrating the importance of incumbency with Hyperscale customers. Our third quarter leasing results included an incremental 8 megawatt expansion in our new Atlanta data center with a large Hyperscale customer. Including this new commitment, we've now pre-leased more than 24 megawatts in the new Atlanta facility, which officially opened its first phase during the third quarter. Ultimately, the new side is expected to support 72 megawatts of power capacity upon full stabilization.

QTS remains the well-established market leader in Atlanta, having served the market through our Atlanta Metro and Suwanee data centers for over 10 years. QTS' competitive advantages in Atlanta market include strong operating leverage across our more than 1 million square feet of capacity currently in operation, the ability to offer customers the lowest cost of power in the market through our dual substations and large embedded customer base of over 500 customers. We are pleased with the strong level of pre-leasing in the site and look forward to extending our market leadership position.

Moving now to Richmond. We signed an incremental 3.5 megawatt lease with one of the largest customers of Hyperscale data center capacity in the industry. QTS has signed its first lease with this customer in Fort Worth in early 2019. This customer since expanded in four additional QTS sites and we look forward to continuing to support the continued growth in their business.

Next, within Federal, we signed an approximately 5 megawatt lease with the Hyperscale customer, supporting the federal government. This is QTS' first-signed lease with this customer, representing an incremental source of potential growth in the future. This initial deployment demonstrates a continued momentum we are seeing in the Federal vertical. As we've discussed in the past, due to the unique security requirements for this customer base and higher barriers to entry, federal deployments represent a unique value creation opportunity for QTS. We remain encouraged by the Federal momentum we see building in our funnel and look forward to continued growth in this unique segment of the market.

Overall, we are pleased with the successful execution of our business plan in the third quarter. Across each of our target customer verticals, our differentiation is driving increased win rates and leasing activity and positioning our business for continued growth and performance. Against the volatile economic backdrop, the consistency of our results is something we at QTS are proud of, and we look forward to maintaining our momentum and close out the year strong.

With that, I'll turn it over to Jeff Berson, our Chief Financial Officer. Jeff?

Jeff Berson -- Chief Financial Officer

Thanks, Chad. And good morning. Turning to slide 8. I'd like to begin by reviewing QTS as recent debt capital markets activity since the end of the second quarter. In early October QTS completed a successful $500 million offering of 8-year senior unsecured notes in a private offering the offering was upsized from an initial size of $400 million and priced at 3.875%. This represents nearly 100 basis points inside our existing high-yield bonds, reflecting the continued improvement in QTS' credit profile and consistent performance. The net proceeds from the offering were initially used to repay a portion of the amount outstanding under QTS' unsecured revolving credit facility.

Subsequently, last week, QTS provided notice of our intent to use the corresponding availability under the revolver to call our $400 million of outstanding 4.75% senior unsecured notes due 2025 at the first call date of November 16, 2020. This transaction successfully extends our debt maturities while locking in historically attractive rates to further support our ongoing development activity.

Additionally, on October 16, QTS completed a new $250 million term loan with a five-year maturity. We believe this represents the first five-year term loan completed by a public REIT since the onset of the pandemic earlier this year. The applicable spread on the new term loan is generally consistent with the pricing on QTS' existing credit facility, which was completed in late 2019. Including the new term loan and high yield notes and factoring in the repayment of QTS' existing high yield notes in mid-November, over the last 12 months, QTS has successfully extended its weighted average debt maturity by nearly two years to approximately 5.5 years and reduced its weighted average cost of debt by approximately 50 basis points to approximately 3.1% as of September 30, 2020, including a series of interest rate swap agreements.

Lastly, in early September, QTS is pleased to announce that Moody's upgraded QTS' credit rating by one notch to Ba3. A key priority for QTS is achieving an investment-grade rating over the next few years. We anticipate continued improvement in our credit profile and ratings through ongoing growth in the scale and diversification of our platform, conservative balance sheet management, and consistent operating performance, even amid a volatile economic backdrop.

Now moving to our equity funding activity on Slide 9. As of our Q2 earnings release, on July 27, QTS had access to approximately $585 million of net proceeds through forward stock issuances. Subsequent to our second quarter 2020 earnings call, through our ATM program, equity representing approximately $23 million of net proceeds was sold on a forward basis. In addition, during the third quarter, QTS settled approximately 2.9 million shares of forward equity for net proceeds of approximately $152 million to support our ongoing development activity. This resulted in net proceeds through forward stock issuances available to QTS of approximately $456 million as of yesterday's earnings release.

As we've discussed in recent quarters, given continued volatility across the capital markets, combined with our accelerating leasing momentum, we expect to maintain a proactive approach to pre-funding the capital needs in our business three to four quarters or more in advance. With capital funding needs that are currently pre-funding into the middle of next year, combined with continued growth in our booked not billed backlog, we believe our future performance is materially de-risked, which positions us well to continue to deliver consistent operating results.

Next on Slide 10, I'd like to review our current balance sheet and liquidity position. As of the end of the third quarter, pro forma for our recent high yield offering and incremental term loan and assuming the repayment of a portion of our unsecured revolving credit facility and refinancing of our existing 4.75% quarters high yield notes in November, we had total available liquidity of approximately $1.3 billion, including the $456 million of available forward equity proceeds. Also, including these pro forma effects, we currently have no significant debt maturities until 2023 and beyond, and approximately 75% of our indebtedness is subject to a fixed rate, including a series of interest rate swap agreements.

We ended the quarter with pro forma leverage of approximately 4.1 times net debt to annualized adjusted EBITDA, including available forward equity proceeds. Excluding forward equity proceeds, our leverage at the end of the third quarter was approximately 5.6 times. We currently expect to draw down our forward equity proceeds over the coming quarters to fund our future development plan, while maintaining leverage at a level consistent with where we have historically operated in the mid-to-high 5 times range. We remain comfortable operating the business at this leverage level, considering the size of our booked not billed backlog and associated pre-leased development in addition to derisk equity funding.

Next on Slide 11, we are revising our 2020 financial guidance to reflect year-to-date outperformance, our updated capital expenditure outlook and our expectation of performance for the balance of 2020. Through the third quarter, we've continued to outperform our initial expectations for recurring revenue due to strong leasing activity year-to-date. As a result, we are revising our revenue guidance range for 2020 to between $531 million and $537 million, which represents an increase of $4 million at the midpoint relative to our prior outlook.

Due to continued outperformance in recurring revenue and successful cost management, we are again raising the midpoint of our adjusted EBITDA guidance for 2020 to a range of $288 million to $293 million, up from $280 million to $290 million previously. At the midpoint, our revised guidance range reflects an adjusted EBITDA margin of 54.4%, representing approximately 230 basis points of year-over-year margin expansion. As a reminder, our current outlook includes a full-year aggregate benefit of approximately $2 million to $3 million relative to lower-than-expected corporate travel and utility expenses as a result of the ongoing effects of COVID-19 that we discussed last quarter.

While these reduced costs have increased our adjusted EBITDA margin performance in 2020, we would expect these costs to return to a more normalized level in 2021, assuming COVID-19-related disruption begins to subside. However, even excluding these benefits, our updated adjusted EBITDA margin guidance still represents more than 100 basis points of year-over-year margin expansion, reflecting continued operating leverage in our platform.

Moving to capex. Due to the strength of our booked not billed backlog resulting from strong signed leasing activity year-to-date, we are raising our capital expenditure guidance for 2020. For the full-year 2020, we now expect 2020 cash capex, excluding M&A, of between $700 million and $800 million, up from $650 million to $750 million previously. Our updated capex outlook incorporates an additional approximately 40,000 square feet of raised floor capacity that we now expect to deliver and in-service relative to our previous 2020 expectations, reflecting sales momentum in Richmond, Chicago, Piscataway and Hillsboro.

We have also updated our 2020 OFFO per share guidance to reflect our higher revenue and adjusted EBITDA outlook, and updated capital development plan. Our updated 2020 OFFO per share guidance range of $2.75 to $2.83 reflects in excess of 6% growth year-over-year at the midpoint. This represents an increase relative to our previous guidance range of $2.73 to $2.83 and our original guidance for the year of $2.69 to $2.83.

Now turning to Slide 12, I'd like to spend a few minutes reviewing QTS' overall approach to capital allocation. As we discussed in the past, our approach to capital allocation is directly tied to our goal of achieving consistent annual growth in OFFO per share of between 5% to 9%. Building and managing data centers is inherently a capital-intensive business. Since the capital is deployed in some instances well before the associated revenue commences on assigned lease, as a management team, one of our primary job is to constantly reallocate and reprioritize our capital development to find the appropriate balance between near-term and long-term returns.

Additionally, our funding strategy, including use of forward equity, plays a critical role in derisking our future development activity, while minimizing near-term equity dilution. While our capex expectations and associated equity funding needs have increased over the course of 2020, this is a direct result of the acceleration in signed leasing activity we have experienced. As a result, more than 80% of the development capital we will have spent in 2020 is directly tied to supporting signed customer leases. In addition, we've been successful in maintaining a strong Companywide return on invested capital, which continues to represent a significant value creation spread above our cost of capital, even before the material improvements to our cost of debt we executed over the past 12 months.

Due to the lag between capital that is developed and revenue commencement, we would typically expect OFFO per share growth to trend toward the lower end of our 5% to 9% target during years of higher capital intensity like 2020. Despite the increase in capital deployed this year, we've still been able to achieve OFFO per share growth within our target 5% to 9%. In fact, based on the midpoint of our updated OFFO per share outlook for 2020, we are anticipating growth of over 6%.

As we head into 2021, we're pleased with the momentum in our business and sales funnel. We believe the visibility in our backlog and expected leasing performance will again support low-double-digit revenue growth in 2021. In addition, we continue to expect incremental operating leverage across our platform that drive year-over-year adjusted EBITDA margin expansion in 2021 adjusting for the $2 million to $3 million of COVID-related cost benefits in 2020 that I referenced earlier.

Based on the accelerated pace of leasing activity in 2020 and our current book not billed backlog, we expect total cash capex in 2021 to be consistent with 2020 levels. This outlook reflects the efficient expansion of capacity in our existing sites in addition to opening the previously announced new 40-plus megawatt facility in Ashburn in mid-2021.

Year-to-date, our average quarterly net leasing of approximately $23 million is more than 50% above our target level of $15 million, which directly drives our capital expenditure outlook. In 2020, we expect to complete a total of over 60 megawatts of gross power capacity, driven by accelerated leasing volume in 2019 and 2020. And in 2021, we would expect to deliver a similar amount. This compares to the prior three years between 2017 and 2019 that averaged approximately a third of that level.

Based on a robust and largely pre-leased development plans for 2021 and corresponding adjusted EBITDA growth, we remain committed to achieving year-over-year growth in OFFO per share within our target range of 5% to 9%, although likely at the lower end of that range in 2021 due to accelerated capital deployment expectations. When combined with our dividend yield, this approximates the double-digit annual value creation opportunity for shareholders while positioning our business for continued strong growth in the future as our booked not billed backlog commences.

Overall, we're pleased with the consistent performance of our platform, particularly amid the dynamic economic environment. With continued strength and diversification in our leasing activity and the development plan that is fully funded into the middle of next year, we're focused on continuing to deliver consistent financial and operating results.

I'll now turn the call back over to Chad.

Chad Williams -- Chairman and Chief Executive Officer

Thanks, Jeff. I'm pleased with our execution and business performance. The relative consistency of our results and the visibility into future growth further demonstrates in our view the criticality of our business in today's digitized society. As the pace of digital transformation accelerates, we believe the growth opportunity for QTS will continue to expand, and we look forward to leveraging our core differentiators to drive continued market share growth.

I'd like to thank each of our QTSers for their continued execution and commitment to serving each other, our customers and our local communities. We believe to who much is given much is expected, and we have a unique opportunity in the current environment to accelerate our support of our surrounding workplaces and communities. Finally, I also would like to thank our customers and shareholders for their continued trust and confidence in QTS.

With that we'd be glad to take questions. Operator?

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And today's first question comes from Jordan Sadler with KeyBanc Capital Markets. Please go ahead.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Thank you, and good morning, everybody. So wanted to start off on the acceleration of the Hyperscale business that you spoke to in your prepared remarks. Can you maybe characterize the nature of what's driving this, if you're starting to see a bit more of an acceleration that feels pandemic-related, or is this more of a continued result and sort of the work that you guys have put in over the past several years?

Chad Williams -- Chairman and Chief Executive Officer

Hey, Jordan. This is Chad. It really is a result of the work. We really haven't seen any irregular behavior from the hyperscalers. Again, we target one to three deals, not every deal works for QTS. We make sure that we're focused on where is the capital efficient for us with our powered shell inventory, where is the return on invested capital look attractive for us to intersect. And we've just -- there is a good uptick in opportunity, but it's really just normal course business.

I think the digitization and the plans with the clouds and how the SaaS and the cloud companies continue to grow is just an attractive marketplace, and we're excited to participate where we feel like where work fits for us.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Yeah. Well, it's interesting because you did kind of point to for 2021 capex continuing to be in about the same range I think this year. I'm curious you mentioned ROIC. What are you achieving now because you did have quite a bit of Hyperscale and Federal leasing in the quarter? What are you achieving in terms of overall returns or maybe a range of returns for the Hyperscale and Federal deals that was done in the quarter?

Chad Williams -- Chairman and Chief Executive Officer

It depends on which market, but we feel very good about our 9% to 11% return. And a number of those deals this year for us, which has been very attractive had been on the higher end of that range, because it's been where we have a strong competitive position. Our cost is in a great alignment. It doesn't mean also that we haven't done some deals where markets are more competitive, but it's just -- we feel good about 9% to 11% range and I think the way we've talked about Federal consistently, as you know we -- it's at the higher end and in some cases exceeds the Hyperscale returns. So, we feel good about the return metrics. And I think the best opportunities we have is we have a pace about that discipline and the capital efficiency, it matters to us.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Thank you.

Chad Williams -- Chairman and Chief Executive Officer

Thank you.

Operator

And our next question today comes from Jonathan Atkin with RBC Capital Markets. Please go ahead.

Jonathan Atkin -- RBC Capital Markets -- Analyst

Thanks. So I wanted to kind of drill into the capex topic as well for next year. And can you give us a little your kind of a way to explain it roughly the directionality of its by how much? And then the capex per megawatt given that next year might be a different mix of Phase 1 versus Phase 2 onward types of builds the unit cost for the capex would be interesting to get your perspectives on.

Jeff Berson -- Chief Financial Officer

Sure, Jon. So the capex guidance for this year at $700 million to $800 million to your point, I think we said we anticipate capex next year in that same range. Now what we're very proud of is that we've had a history of adjusting capex based on the demand that we're seeing and being very flexible in terms of where we move that. So embedded within that $700 million to $800 million is one a knowledge that we've got a record booked not billed backlog. And so a lot of that capex is already committed in our booked not billed in signed contracts. And then secondarily, continued confidence into next year that leasing will continue to support that level.

In terms of the timing of it, again, because a lot of that is already in our current booked not billed backlog for projects that need to get delivered toward the middle of next year, you'll see that more front-end loaded. So you should think about that as you're modeling it.

Chad Williams -- Chairman and Chief Executive Officer

And Jonathan, on the cost per unit, we continue to kind of talk about our cost per unit at $7 million to $8 million per megawatt. There are examples where we're going to be much more competitive than that, but there's also examples where we're on the higher end of that. I think the biggest thing we've done over the last couple of years is put together kind of what we call the freedom design lineup in the systematic uniform infrastructure changes that Dave Robey and that team have made have really helped us on speed and cost. And we continue to be -- feel like that's an attractive metric for us and we continue to work toward standardization across the platform. It's really helping on efficiency of supply chain cost and speed.

Jonathan Atkin -- RBC Capital Markets -- Analyst

On the timing of the capex, then, given the volume of just development capital going into the industry, I can imagine there might be competition for labor, maybe competition for long lead-time items. How does that kind of play into your thinking around the outlook for next year and the cadence of the timing?

Chad Williams -- Chairman and Chief Executive Officer

Yeah. It depends on which markets you are, but we have not had any issues with that. And probably the biggest impact this year has been the potential around the pandemic. Our teams have done a excellent job working with our partners to make sure that our sites are safe, our people are safe and we've accomplished our goals. We've delivered -- we'll deliver or build or develop approaching 70 megawatts of infrastructure this year and have hit every date that we've laid out for customers, which has been important for them and important for us. So, we think the impacts have kind of worked through and we think the standardization of our ability to order a product that can kind of ship anywhere with the standardization that Dave and the team have done is really helping us with supply chain risk also.

Operator

Thank you. Our next question today comes from Eric Luebchow with Wells Fargo. Please go ahead.

Eric Luebchow -- Wells Fargo -- Analyst

Great. Thanks for taking the question. I'm just wondering, I know you still continue to talk about one to three Hyperscale deals per year, but you've obviously been well above that over the last 18 months or so. So any update to kind of your annual expectations or may be if you had been kind of targeting that vertical a little more directly if we should expect that range to continue or perhaps you'll be above that in the foreseeable future? And then on the Federal side, and it was nice to see a new logo in that, just wondering what kind of opportunity you see there? Are there other new logos out there that you can pursue or will a lot of it be just existing expansions? Just don't have a great sense for what kind of your market shares in the Federal vertical, so some color there would be great. Thank you.

Chad Williams -- Chairman and Chief Executive Officer

Thank you. Two great questions. We don't feel -- since a lot of pressure on trying to change the Hyperscale numbers of one to three, we're going to stay very disciplined on that. I think the thing that I'm most focused on is the balance and diversification of our business. I love it that we get up every day with the business that's hybrid enterprise-focused and gets out and worked with the hundreds of hundreds of hundreds of enterprises that need a digitized co-location product at a high level of compliance and service.

I love it that our Hyperscale team has continued to have traction in the market with their value prop. And Federal, as you mentioned, has been something that we've worked on for about a decade. It's great to see how the in-source to outsource is taking traction in the Federal space. It's really, I think, something that everybody felt like was had to come at some point. I'm just excited that we are in a position where there is a group of partners that we're working with that are challenging us to step up and help, and we look forward to continuing both to expand existing ones and search for new ones.

Eric Luebchow -- Wells Fargo -- Analyst

Thank you.

Chad Williams -- Chairman and Chief Executive Officer

Thank you.

Operator

And our next question today comes from Colby Synesael with Cowen. Please go ahead.

Colby Synesael -- Cowen -- Analyst

Great. A few if I may. Can you tell us which of the deals that you referenced earlier with the triple-net lease? If you mentioned already, I apologize. And then also, I'm just curious, are you seeing incremental demand for triple-net type leases and also a different product, but are you also seeing increased interest for shell capacity opposed to the more typical turnkey? Just trying to get a sense where the demand trend from these hyperscalers is going.

And then also you mentioned enterprise leasing. I'm just curious, was it within that $6 million to $8 million range that you referenced as your typical target? And then one more if I could actually just sneak it in there. I was wondering, as you continue to see very strong demand, you kind of committed to this 5% to 9% OFFO per share growth. And to the extent you see an opportunity that would arguably require increased capex and potentially dilution below that 5% on your target, what is the alternative? What will you do? Are you simply going to walk away from that opportunity? Or is that when we should expect to see you doing more JVs? Thank you.

Chad Williams -- Chairman and Chief Executive Officer

That was the best five question-answer I've ever seen. So, let me take it one at a time here. Hey, we're going to stay disciplined on the 5% to 9%. We've got investors that have all sorts of different ranges on what their expectations. We need to be consistent. It's going to be something that we stay focused on to try to stay within that range.

JVs are always an option, and we'll continue to look at that. We don't necessarily like to walk away from deals, but I've walked away from more deals this year than any year that we've had because we're going to stay disciplined on capital efficiency and return on invested capital. That's how you grow the bottom line. So we're going to stay focused on that. Enterprise opportunities within triple-net was enrichment, and do we see more of that, not necessarily. We do have some hyperscalers that prefer that structure. I don't actually minded at all. It's a great structure, just explain that, that makes us billing all of the expenses above a base rent, so taxes and insurance and power and all those types of things. And to us, it's just a little bit of risk off the table. So that's a great structure.

I'd say probably the trend is to go away from triple-net leases, not go toward them. But if somebody shows up and that's their preferred method, we're going to do that. We don't typically like to give up our powered shell inventory to some shell buyer. There are hyperscalers that want to do a lot of that stuff themselves. That's just not really our model. We think that the infrastructure is going to be hard to replicate over the years to come and that shell capacity is an embedded opportunity for growth for us that's strategic in most of our markets. So, don't like to give that up to much. So, thank you, Colby.

Operator

And our next question today comes from Eric Rasmussen with Stifel. Please go ahead.

Eric Rasmussen -- Stifel -- Analyst

Yeah. Thanks, and congrats on the solid execution. Just on following up to maybe get a little more clarity on the Hybrid Colo business. You had mentioned some steady performance there. But can you comment are you seeing any weakness or slow down as we've sort of been hearing from other avenues? And then potential for push outs for further projects in the pipeline? I would like to hear your thoughts there. And then I have a follow-up.

Chad Williams -- Chairman and Chief Executive Officer

Yeah. Thanks, Eric, for saving me on a Colby question I missed there. The $6 million to $8 million range is consistent. What's great is it's kind of where our Hybrid business has been, it continues to perform. I would be saying that, obviously, we've had more incumbency driving that $6 million to $8 million range over the last couple of quarters, but we are definitely seeing a little bit of uptick from enterprise on kind of getting their feet underneath them on the pandemic, we haven't seen any pull forward. And we're excited about the opportunity that Hybrids need to get their plans figured out for '21 and we think that'll be a consistent ability for us to focus on it. So pretty consistent in its performance.

Eric Rasmussen -- Stifel -- Analyst

Great. That sounds good. And then maybe just on the Federal business, circling back on that, can you just comment on the deal pipeline and maybe just what's driving the strong leasing tear-to-date? Are you seeing any changes in customer behavior and acceleration there? Maybe some comments there would be helpful.

Chad Williams -- Chairman and Chief Executive Officer

Yeah. I think the biggest thing I'd take away is Federal is very hard to get to a place to do business, because you can't do it unless you have the track record, security and compliance behind it, and you can't get that unless you can get a deal. So it's this perpetual circle that's hard to get into. I think that the years worth of work has put us in a good position. We've got a lot of trust with certain clients that have entrusted us with this important mission and service for the government, and we're going to continue to build that. It's very hard to predict this type of business, but we're going to continue to have us an opportunity and we're going to continue to serve our country and our customers best we can.

Operator

And our next question today comes from Nate Crossett with Berenberg. Please go ahead.

Nate Crossett -- Berenberg -- Analyst

Hey, good morning, guys. Maybe just a question on overall pricing. This quarter, new lease pricing was a little bit below trend, even when you strip out that large Hyperscale lease. So I was wondering if you could give us some color on pricing. Was it just because you did a number of larger deals? And then if you could just also comment on current interconnect pricing, that'd would be helpful.

Chad Williams -- Chairman and Chief Executive Officer

Yeah, Nate. On the pricing, if you really pull out that triple-net, we really feel like that we're in that $4.40 range, which is in line with kind of historical. So we think pricing is in line, it was just the nature of that. crossConnects continue to be a driver for us. The automation in the FTP platform, the software-defined platform that sits on top of our data centers, is enabling our customers in a digitized world to intersect with this with less friction. And we think that's going to continue to drive. So we continue to see the right type of trends in that area. We're adding to that network all the time, and we're excited about that area of our business and the growth.

Nate Crossett -- Berenberg -- Analyst

Okay. Thank you. And then just one on EBITDA margins. Can you just kind of give us a guidepost for 2021? And what levers you have to pull to keep margins going up?

Jeff Berson -- Chief Financial Officer

Sure, Nate. So if you look at the midpoint of our guidance in 2020, we're at about, call it, the 54.5%. We love the fact that that's over 200 basis points higher than where we were last year. So clearly we're seeing some good operating leverage in the business. Some of the margin benefit in 2020, as we discussed, is just from some reduced expenses related to travel and power coming out of COVID, that's $2 million to $3 million. So if you normalize, that's about 75 basis points of margin improvement in 2020 coming out of COVID that we expect will reverse next year. So our expectation then is continuing to see operating leverage where we can grow our core margins by 50 basis points plus or minus. So effectively if 2021 margins are in line with the 54.5% that you saw in 2020, it's increasing the costs from travel and entertainment and then operating leverage to make up for.

Operator

And our next question today comes from Michael Funk with BOA. Please go ahead.

Michael Funk -- BOA -- Analyst

Hey. Good morning, guys. Thank you for the questions. First one, if I could, has churn benefited in 2020 from COVID? I guess, if so, what are your expectations for '21 in corporate, maybe for an uptick in churn as some customers that may have delayed pushed that out into next year?

Chad Williams -- Chairman and Chief Executive Officer

Michael, I think if anything, this year, we've seen a little bit of it'd be back-end loaded. So, probably some of the earlier stuff probably pushed into a little later in the year, which you saw the uptick. But as we did earlier this year, we tightened the range down and the 3% to 5% we feel good about. And I don't see anything in '21 that would necessarily change anything that we're seeing this year. I don't think there's anything that's flopping over into '21 that's necessarily any kind of significant difference to this year.

Michael Funk -- BOA -- Analyst

And then one more if I could, please. Your six facilities coming online in 4Q [Indecipherable], can you give us some initial thoughts about 2021 with growth? Maybe help us think about the associated operating expense, property operating expense, with those facilities coming online, the sequencing during '21?

Jeff Berson -- Chief Financial Officer

Sure, Mike. So in terms of some of the facilities coming online, I mean one of the things that you'll see in the expectations for Q4 is we added capex above our expectations in Q3, and some of the markets where you see that are markets like Richmond, Chicago, Piscataway. And a nice thing about some of those is those are not markets where we've historically seen some of the bigger Hyperscale deals and it just demonstrates the continued growth as well on the Hybrid Colo side, right? The Piscataway market, the Chicago market, those have been very strong enterprise markets for us, and we're increasing capex associated with those markets because of the growth of the enterprise business that we're seeing.

From an opex standpoint, we feel very good that over the last couple of years as we've continued to expand the footprint moving to new facilities and new markets, which clearly takes some opex investment early on. So we've maintained pretty steady margins in opex, actually slightly improving. And then a lot of the operating leverage is coming from G&A, and we'd anticipate that going forward as well. So definitely some pressure as you move into new markets on opex, but also focusing on efficiencies, leveraging STP, to manage the facilities with good capital and cost efficiencies. And so I'd say some of the operating leverage going forward, you'll see a little bit of that in opex, but a lot of it in G&A.

Michael Funk -- BOA -- Analyst

Thank you for the time guys.

Chad Williams -- Chairman and Chief Executive Officer

Thank you.

Operator

And our next question today comes from Brett Feldman with Goldman Sachs. Please go ahead.

Brett Feldman -- Goldman Sachs -- Analyst

Yeah. Thanks for the taking the question, guys. So I mean, you've obviously had several quarters here where you've had bookings that have just been so far above the target that you have. And as you noted, a lot of this is coming out of Hyperscale and Federal, and you made the point that these tend to have longer sale cycles. So I imagine earlier in the year when you were sort of setting expectations, you sort of knew what the opportunity set was in front of you, and you just seem to be doing way better than it.

Even if we adjust for a natural degree of conservatism that I'm sure you embedded in that outlook, something's got to be hitting well above expectations. And so I guess the question is, are you getting a higher win rate? Are you just closing things more quickly? Did the funnel actually expand early in the year in a way that you hadn't expected? I just think anything that you can offer to help us think about it would be helpful because modeling $15 million of book -- quarter of bookings right now just feels way too low. I'm just not entirely sure what the rate baseline should be going forward. Thank you.

Chad Williams -- Chairman and Chief Executive Officer

Brett, thanks. Maybe we go to $16 million or $17 million next year, but I mean it's kind of a combination of all of that. It's just been -- we're going to base our business on where we see the consistency and reliability in our commercial enterprise business, our Hybrid Colocation business. And you're right. The Federal space and the Hyperscale space does not always play in a consistent fashion. So you may have no Hyperscale or no Federal in any given quarter. So what I don't want to do is end up where we have a quarter where the Hyperscale and Federal did not participate in that quarter, and then everybody says, what went wrong? Well, nothing went wrong.

It's just the way that business cycles and we want to build a consistent and reliable base for people to build their models and be consistent on. And that's really what we've tried to do. And, yeah, it's been a very fortunate last couple of years. We've been able to win the right type of deals with the right returns in the right markets. But we want to build consistency going forward and we want to set the right expectations.

Brett Feldman -- Goldman Sachs -- Analyst

If you don't mind just one more follow up on this. I've noted in the last question, you obviously are going to be bringing in more inventory you can sell next year. And one of the questions we've gotten is that, does this increase execution risk in part because you'll be in some new markets and you have to establish yourself? Or does it actually derisk the ability to hit your bookings target because you have more inventory in new locations you can sell into your existing customer base? Thanks.

Chad Williams -- Chairman and Chief Executive Officer

It's a great question. What's great is many of the expansions we've done are in adjacent to our mega-scale campuses where we already have tremendous resource. You take the Atlanta for example, I was there last week, I mean the new facility is open, they booked 24 megawatts. That's a historic number for QTS. We've never opened a building with that type of leasing, but to have the scale and operations in Atlanta, it is a derisk opportunity because we've got 500 customers now that can grow and see a very visible path.

It's very -- I would say, on the other side to your point, it's great that Clint and Tag now have opportunities to sell in Hillsboro, right? So it adds both a feature of ability to expand in important locations, important tier 1 markets for the future of QTS, and it's also great to show customers that have been with us for years that embedded growth in those scaled facilities, whether it's Richmond, Chicago, Dallas, Atlanta, it's a great combination.

Operator

And our next question today comes from Richard Choe with JPMorgan. Please go ahead.

Richard Choe -- JPMorgan -- Analyst

Great. Thank you. Just wanted to go a little bit deeper on why you were being so successful in Richmond. And then also talk about Ashburn, given how competitive that market is? And what makes you feel confident in putting more capital in both those places? Thank you.

Chad Williams -- Chairman and Chief Executive Officer

Great. Well, Richard, in Ashburn, I mean, last quarter, it was about 75% occupied. This quarter, it's going to tip over 90%. So it's not that we're leaning forward, it's that we want to make sure that Clint and Tag are competitive in the marketplace. Ashburn is one of the most competitive markets. I think there was some concern when we opened in Ashburn in the midst of a build big out. But we truly do believe at QTS that we're doing stuff differently.

We're delivering value to customers in a very differentiated fashion, whether it's our customer engagement scores, whether it's our product offering, whether it's our software that gives visibility and data management, whether it's our SDP platform for connectivity, those things are mattering to customers and you're seeing it show up in our business. And that's not to say Ashburn is not a highly competitive market and lots of people are there and have success there, but we feel that we've got a great product offering, both in Hyperscale and Hybrid, and we're going to continue to push on that.

In Richmond -- we've owned Richmond about 10 years. It's done tremendously well. I think the brightest days for Richmond are still ahead of it, and that's a pretty unique position to be in. I think with the transatlantic fiber now coming through that facility in Richmond, it's changing the communication conversation in Richmond at a degree that we've not seen before. I think you're going to continue to see people think about Richmond as an alternative opportunity for growth, both from a connectivity and connection to the transatlantic fiber and also the ability to have scale, power efficiency, cost, tax advantage and a whole bunch of other things. So I'm just glad we're positioned with a long runway in Richmond because it's going to continue to be a builder of growth for this Company for the next decade.

Richard Choe -- JPMorgan -- Analyst

And one quick follow-up on comments you made earlier about capex being front-end loaded for next year. And with such a large booked not billed backlog, should we assume that a lot of the backlog is coming through in the middle to the second half of next year? Or are we -- should we expect it to be steadier?

Chad Williams -- Chairman and Chief Executive Officer

Yes. It will be kind of more front-end loaded and throughout the middle of the year.

Jeff Berson -- Chief Financial Officer

Yes. And the capex will be more front-end loaded. The contracts that you're going to see start leasing up are going to be delivered toward the middle to the back half of the year. So you will see the performance ramp as we deliver that space.

Operator

And our next question today comes from Simon Flannery with Morgan Stanley. Please go ahead.

Simon Flannery -- Morgan Stanley -- Analyst

Great. Thank you very much. I wonder if you could just touch on Europe for a while. There's strong growth there. Could you just touch on what's going on in the Netherlands? And just update us on your opportunities? You've talked a lot about the organic growth opportunities, so what about inorganic, either [Phonetic] going into new markets in Europe, perhaps? Thanks.

Chad Williams -- Chairman and Chief Executive Officer

Thank you, Simon. I mean right now, we're focused on our Netherlands assets, couldn't be more thrilled with them. Groningen has been a continued outperformer for the portfolio. It's really the Hybrid Colocation asset, but it's just -- it's outperformed everything that we had internally on it. And we're excited to get a small piece of Eemshaven open, but it really opens mostly the rest of this year. And to have an almost 20-megawatt facility -- Hyperscale facility that's now been kind of reestablished and reopened and will open by the end of the year, the rest of it is an exciting opportunity.

We feel that the growth and opportunity in Hyperscale in Europe looks good. We're glad that we're in the Netherlands participating in it. And as we told people, we're going to see our success as we build. We are an organic builder of value, it has been our tradition. The Netherlands is a great example of that. And I think it's a huge opportunity for us the next couple of years to really create some great shareholder value with the basis that we have in those assets and the momentum that we can participate in at scaling the Netherlands.

Simon Flannery -- Morgan Stanley -- Analyst

Great. And just a quick follow-up on churn. You gave the 3% to 5% range, but getting from 2.9% to a lower or higher end is a big difference. So any thoughts on does Q4 look similar or better to Q3? How is that going to flow?

Chad Williams -- Chairman and Chief Executive Officer

Yeah. We're not looking at anything historically different. I think it will be consistent and we'll end up in the range.

Simon Flannery -- Morgan Stanley -- Analyst

Okay. Great. Thank you.

Operator

And our next question today comes from Jon Petersen with Jefferies. Please go ahead.

Jon Petersen -- Jefferies -- Analyst

Hey, thanks. On Federal, I guess, I'm just curious, you talked about how you've been working on this for 10 years, and it's nice to see some wins. I guess I'm curious if you could help us characterize the demand. Is it something at QTS that clicked? You guys have been working on it for a while and you're finally able to convince a number of these deals to go through? Or is it -- on the other side of the thing -- other side of it with the Federal government kind of ramping up their data center needs?

And then also, I guess, kind of along that, can you kind of help us characterize how big the market is? I assume you're winning some Federal deals, but I assume you're losing some deals here and there. And maybe talk about why you lose some Federal deals and win some others?

Chad Williams -- Chairman and Chief Executive Officer

Yeah. Great. Jon, I mean, it's the efficiency of -- we have been working on it for 10 years, but you have to have somebody that's willing to buy. And the Federal government has been working on kind of that plan really for the last decade. And I think what you're starting to see is that the realization that the biggest data creator still or one of the largest data creators in existence is the Federal government, the U.S. Federal Government. And I think that the ability for them to in-source has just become unsustainable. And I'm just glad that we're in a position where we can have the trust and confidence of integrators and companies that need this solution provided to the government, and we're winning our fair share. I don't want to speculate on all the deals that we've lost. We've won our fair share, and we're going to continue to do that. It's a unique business, it's a strong barrier to entry, and the scope of that market is big.

Jon Petersen -- Jefferies -- Analyst

I guess, I'm just trying to figure out your market position within because there's not a lot of transparency here with the government side of things. Like are you guys -- are you guys 50% of the market in terms of the deals that come out? Is it far less than that? Is it far more than that? And then maybe just kind of another follow-up on that. Could you just remind us what the returns are on a multi-megawatt Federal deal versus a multi-megawatt wholesale Hyperscale deal?

Chad Williams -- Chairman and Chief Executive Officer

Yeah. The market's big, we've been successful, and the returns are good. It's just kind of the three points, right? I mean, the returns, we feel good about, they're at the high end, and in some cases, exceed our 9% to 11% range. It's really hard to quantify the market. It's big. It truly is, and I think that we're going to try to put ourselves in a position. We're not going to build our corporate model based on the outsourcing of the Federal government size and timing, but it continues to show up, and we think that will be a consistent theme going forward.

Jeff Berson -- Chief Financial Officer

Jon, what I'd add is we can't speculate on what deals others might be winning, but I can tell you the biggest uncertainty we have when we're chasing deals also, is just the ultimate government agency's ability to move forward and decision to outsource. That's still a real challenge, and it's why the business is so unpredictable.

Operator

Our next question today comes from Frank Louthan with Raymond James. Please go ahead.

Frank Louthan -- Raymond James -- Analyst

Great. Thank you. Can you talk to us a little bit about the potential to get some additional business around the JEDI contract? There's been some conversations that, that's become politicized to the extent that some agencies may just be going around that. Are you seeing any strength there? And then can you comment on enterprise strength, any areas where you're seeing customers potentially delay decisions, or is it net -- on the inflow side, customers sort of accelerate digitization in the wake of COVID? Thanks.

Chad Williams -- Chairman and Chief Executive Officer

Yeah. We really haven't seen any huge pushes or pulls. It does seem like enterprises are getting more focused on '21 planning, and I think that's a good sign. We're hearing that consistently across the board. And remote work and digitization of the workforce is a top priority. So, I just think there's going to be a lot of things that come out of that, that are on people's priorities list, and we're going to be in a position to help them with those priorities.

As far as government contracts, one of the things that gets a little challenging just to be a little more clear about this, we can't really talk about the details of contracts and where they sit and what they are and who they are. So, I can't really talk about specific contracts or how those really play out. It's really part of the security around federal outsourcing, they don't want integrators talking about that. So it's hard to speculate. But I would say that it's -- I know people are focused externally on kind of one big contract that got in the press a lot. I would characterize the stuff that we're working on as many different parts. So it's not just one.

Operator

And our next question today comes from Tim Long with Barclays. Please go ahead.

Tim Long -- Barclays -- Analyst

Thank you. Two, if I could. First, you mentioned SDP a few times. Can you just give us a little more color on kind of some of the metrics there and what you see as far as deal wins or increased deal sizes because of SDP? And then second, I just wanted to follow-up again on the Hybrid Colo. More on the sales cycle, go-to-market, it sounds like in the quarter you've seen a little bit more from existing customers. So, what do you see the cadence of kind of new logos and go-to-market? Is that going to be kind of COVID-related? Or how do you see the recovery on acquiring new customers there? Thank you.

Chad Williams -- Chairman and Chief Executive Officer

Yeah. I'll start with the second one. From a colo standpoint, we are starting to see, as I mentioned earlier, that enterprises are focusing on '21 objectives. We also have seen an embedded growth, 50-plus-percent of our customer -- our business comes from existing customers. We saw that probably peak in at a quarter or close to 70%, but we are starting to see those trends in the pipeline build that the new logo enterprise area of the business is starting to be strong again.

So I think going into '21, you'll see that normalize back to probably more of a 50% of our business comes from existing customers. So I think that trend is -- we'll get back to more of a normalized level. As far as SDP goes, Jon Greaves and Brent have been taken on a number of those things. In fact, Jon, I may let you just take on the SDP conversations and the win rates.

Jon Greaves -- Chief Technology Officer

Yeah. Absolutely. Thanks, Chad. And Tim, what we're seeing just in terms of usage quarter-over-quarter is very consistent. So if you remember, we did talk about our Q2 being, obviously, much elevated from where we were pre-COVID, I'd say probably about double the usage on SDP compared to the start of the year before COVID-19 with kind of an overcarry.

So it's definitely continued to rise. And I think we've now seen the new baseline. We are seeing customers continue to embrace kind of those online transactions of SDP. I know we talked earlier about crossConnects and virtual crossConnects on the call. Again, those numbers also look very, very healthy and continue to remain at a higher level.

And then lastly, it certainly is a big play when we took into both enterprise and hybrid customers around kind of what SDP can bring to their solution. And as they digitize more and more, they are more and more looking for companies who can intersect them in the same way and provide data that they can digest or better understand their own capacity plans, etc.

Chad Williams -- Chairman and Chief Executive Officer

And Jon, I think from -- or Tim, Jon's point on that is it's probably one of the things that we're most encouraged about with new logos is it's a strict differentiator when you can sit down with a new enterprise customer and talk to them about the data flows that they can have and the visibility they can see in their platform. So that's another thing I feel encouraged about new logos. It's just a very differentiated story.

Operator

And our next question today comes from Sami Badri with Credit Suisse. Please go ahead.

Sami Badri -- Credit Suisse -- Analyst

Hi. Thank you very much for the question. What I wanted to know a little bit was, when you entered 2020, there was probably a very good pipeline of enterprise activity, and COVID happened and some of that got punted out. And as you enter 2021, it sounds like the one to three deals that you aim to sign on average every quarter is probably going to be applying more to the Federal or Hyperscale customers. But the first question I have is, does that include enterprise customers? And if it does not include enterprise customers, do you expect that enterprise customer deals that got pushed out that are going to be signed or potentially signed in 2021, could those be big enough to really make your headline bullets with major leasing activity, just to give us a sense on how big the potential pipeline of enterprise activity may be in 2021 and beyond?

Chad Williams -- Chairman and Chief Executive Officer

So a couple of things. It may surprise people, but we played out the year in 2020 or have played out the year in 2020 with a number of our major initiatives not delaying any decisions and not necessarily accelerating. So I know that the pandemic has created a lot of system noise, but I will tell you, it's just not been a huge part of our everyday business as difficult as it has been for so many.

I do think the enterprise pickup, Clint and I were talking about that yesterday, continues to be encouraging on people having a long list of things that they want to go take after. How will that change the overall dynamic? I'm not sure. But I think that we feel like between the three verticals that we have, one to three Hyperscale deals, some Federal opportunities and our core kind of engine with Hybrid, we feel good about the year ahead of us. And I think that's the best thing we can say.

Operator

And our next question today comes from Matt Niknam with Deutsche Bank. Please go ahead.

Matt Niknam -- Deutsche Bank -- Analyst

Hey, guys. Thanks for getting me in. Just two, if I could. First, on the competitive backdrop, if you could just talk about what you're seeing in your bigger markets from both public and private peers, whether anything has changed in recent months? And then secondly, on the balance sheet, maybe for Jeff, can you talk about the path to getting to investment-grade over what time frame and what sort of leverage target you'd like to get to over the long term? Thanks.

Chad Williams -- Chairman and Chief Executive Officer

I'll take the first one on competition. And we see competition -- it really depends on which market. Even with the private and the public peers, they're not in every market in the same way at every place. But we get up every day, it's a very competitive business, it's going to mature and get more competitive, not less competitive. Obviously, people can tell that. We're prepared for that. And I think that's why we feel so strong about the differentiation, the scale of our assets, the diversity of our business. I mean that's what we rely upon, and that's what we're focused on each day. We feel like we can truly separate ourselves from the competition. I think you're seeing that play out this year. Jeff, do you want to talk about...

Jeff Berson -- Chief Financial Officer

Sure. And I think from a balance sheet management standpoint, we're very excited about some of the things we've implemented over the course of the last 12 months, pushing out maturities materially by a couple of years, bringing down overall cost of capital. From a leverage standpoint, actual quarter leverage in the mid- to high-5 terms, consistent with where we've been historically, and we think the right level to continue to manage business going forward. The reality is, given the way that we're leaning into funding the business, using forward equity as well, the net leverage at 4.1 turns for the quarter, and I think you'll continue to see more forward equity proceeds over the next few years as a way to fund the business.

So a difference between that gross net leverage and net leverage, I think, helps us with the rating agencies. And that net leverage, along with continuing scale and consistency of operations is putting us well on the path for investment-grade within the next few years. We're very excited about Moody's upgrade that we got about a month ago and are working hard to make sure that, that's just the beginning, and we continue to see upgrades from the agencies with that target toward investment grade, as I said, hopefully coming soon.

Operator

Thank you. And today's final question comes from Nick Del Deo with MoffettNathanson. Please go ahead.

Nick Del Deo -- MoffettNathanson -- Analyst

Hey, thanks for fitting me in. One for Chad and one for Jeff. Chad, you've always talked about being happy with the two-thirds Hybrid Colo and one-third Hyperscale mix. And you actually -- you emphasized that point in response to an earlier question. By how much could that two-thirds, one-third mix shift before you got uncomfortable with having too much Hyperscale exposure?

And then for Jeff, how should we think about the trajectory of a straight-line revenue from here? It's obviously been well above historical levels for the past couple of quarters. And has the jump been more a function of Hyperscale leases with escalators turning up or initial free rent periods?

Chad Williams -- Chairman and Chief Executive Officer

Well, the first part of that is we do have two-thirds in Colo and one-third in Hyperscale, but that's not really what we wake up and worry about every day. What I focus on is, are we doing the right deals at the right returns with the right capital allocation, and those numbers can shift. I mean, I'm sure Hyperscale is going to continue to grow as a percentage of our revenue. And if we're doing deals that are 9% to 11% and accelerate new markets that get us open in some markets and give us an ability to put more dots on the map in a productive way, we just think the engine together is the strongest, right?

We think that if you think about it as a three-legged stool, we think all three legs are important for it to stand. And I don't get up necessarily worried about what exact percentage. Are we doing the right deals in the right markets with the right capital efficiency, and it's kind of a fun opportunity just to kind of navigate and see where the business goes with those kind of three focuses.

Jeff Berson -- Chief Financial Officer

And I'd say on the straight line, we're absolutely delivering and starting to build customers on some of those larger deals. But at the same time, the larger Hyperscale and Federal deals, you've seen an enormous increase in that business over the last 18 months. And that's what's driven the higher straight line. In terms of what's behind that, it's much more long-term leases, escalators and importantly, ramps. So it's less about free rent upfront and more about the ramps that these larger deals take over time as they're scaling up for these large commitments.

Going forward, we have enthusiasm that you're going to continue to see some big Hyperscale business from us, you're going to continue to see Federal business from us. And as a result of that, we're anticipating straight line in the future that's sort of in line with what you're seeing this year.

Operator

And ladies and gentlemen, this concludes your question-and-answer session. I'd like to turn the conference back over to Chad Williams for any final remarks.

Chad Williams -- Chairman and Chief Executive Officer

Well, thank you for your time and consideration. Look forward to talking to you next quarter, and thank you.

Operator

[Operator Closing Remarks]

Duration: 69 minutes

Call participants:

Stephen Douglas -- Head of Investor Relations & Executive Vice President, Finance

Chad Williams -- Chairman and Chief Executive Officer

Jeff Berson -- Chief Financial Officer

Jon Greaves -- Chief Technology Officer

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Jonathan Atkin -- RBC Capital Markets -- Analyst

Eric Luebchow -- Wells Fargo -- Analyst

Colby Synesael -- Cowen -- Analyst

Eric Rasmussen -- Stifel -- Analyst

Nate Crossett -- Berenberg -- Analyst

Michael Funk -- BOA -- Analyst

Brett Feldman -- Goldman Sachs -- Analyst

Richard Choe -- JPMorgan -- Analyst

Simon Flannery -- Morgan Stanley -- Analyst

Jon Petersen -- Jefferies -- Analyst

Frank Louthan -- Raymond James -- Analyst

Tim Long -- Barclays -- Analyst

Sami Badri -- Credit Suisse -- Analyst

Matt Niknam -- Deutsche Bank -- Analyst

Nick Del Deo -- MoffettNathanson -- Analyst

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