(This article has been updated with additional information)
OVERLAND PARK, KS—Two days after QTS Realty Trust announced a restructuring plan to accelerate its growth, Land and Buildings Investment Management called on the data center REIT's shareholders to explore strategic alternatives, including a management shakeup and M&A activity. The QTS letter over the signature of Land and Buildings CIO Jonathan Litt calls QTS “a perennial underperformer, delivering inferior total shareholder returns to data center peers over several years, including underperforming by nearly 100% since the company's October 2013 IPO.” In a statement, QTS responds to the Land and Buildings letter by saying that its board and management team “are focused on delivering substantial near-term and long-term value creation and will continue to take actions to advance this objective.”
Litt, who says that Land and Buildings is “a significant shareholder” in QTS, notes that the REIT's stock pricing fell by 23% following the release of its fourth-quarter and full-year 2017 results Wednesday, and is down by 37% since the start of 2018. He calls the pricing drop “emblematic of the problems plaguing the company, as mismanagement and miscommunication overwhelmed excellent data center fundamentals.”
The call to action at QTS follows other campaigns that Litt has undertaken in the REIT sector over the past few years. Most recently, these included an expression of disapproval over RLJ Lodging Trust's latest board member selection and, more broadly, the financial implications of the recent merger with FelCor Lodging Trust.
In the case of QTS, Litt ascribes the company's performance issues to senior management, and specifically Chad Williams, the company's chairman, CEO and founder. “Mr. Williams, who dominates investor presentations and earnings conference calls, has repeatedly overestimated the company's future operating performance, presided over poor capital allocation decisions and created a misleading outlook for the profitability of QTS, opening the company up to potential class action claims,” writes Litt.
The restructuring plan QTS announced earlier this week is intended to position the company “for accelerated future growth by re-focusing our organization around the two primary drivers of demand in our business, hyperscale and hybrid colocation,” Williams said Tuesday. “In addition, by simplifying our business and cost structure we anticipate achieving a meaningful increase in our profitability and long-term value for shareholders.”
Litt writes that the plan “may or may not turn out to be a value-creating endeavor,” but asserts that following the Q4 earnings results, “management's credibility is gone.” He calls on the REIT to “avail itself of all opportunities to close the massive discount to peers and net asset value.”
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
