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Activist pans 'perennial underperformer' QTS Realty for mismanagement

Activist investor Land & Buildings Investment Management LLC called on QTS Realty Trust Inc. to explore a potential public-to-public merger deal and to drop its planned strategic redirect that precipitated a steep decline in the company's share price the previous day.

In a letter to shareholders, Land & Buildings founder and Chief Investment Officer Jonathan Litt said since the data center real estate investment trust's 2013 IPO, the company has been a "perennial underperformer" that delivered inferior returns compared to data center peers CyrusOne Inc., CoreSite Realty Corp., Digital Realty Trust Inc. and Equinix Inc.

Litt specifically singled out QTS Realty founder, Chairman and CEO Chad Williams for overestimating the company's future operating performance, making "poor" capital allocation decisions, and creating a "misleading" outlook for profitability that could potentially open the company to class actions, as well as criticizing the company's "unexpected churn events" and "uneven leasing."

"Despite the announced restructuring, which may or may not turn out to be a value-creating endeavor, the one thing that is clear from yesterday’s announcement is that management’s credibility is gone," Litt wrote.

Noting the sector's sound fundamentals and data centers' high valuations in the private market, Litt also believes QTS Realty's intrinsic and net asset values are well above the company's current share price, based on public market mergers and acquisitions activity and comparable private market transactions.

In a note to investors, Jefferies analyst Jonathan Petersen said QTS Realty's strategic plan to focus on fast-growing hyperscale and hybrid co-location customers is probably good for the company's long-term prospects, but investors are not likely to take the long-term view.

QTS Realty in a release said its board of directors appreciates shareholder input and is committed to their new strategic plan, which they believe will "deliver disciplined growth and sustainable value to shareholders."