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Stamford hedge fund challenges Kansas data-center firm

Connecticut Post logo Connecticut Post 4/18/2018 By Paul Schott

Stamford-based hedge fund Land & Buildings said this week that it would not vote for the CEO-chairman of a major data-center company in its May 3 board election, as it steps up its shareholder activism.

As an approximately 3 percent shareholder of Overland Park, Kan.-based QTS Realty Trust, Land & Buildings plans to withhold its votes for QTS Chairman and CEO Chad Williams and William Grabe, chairman of the company’s Compensation Committee. The move would send a “clear message” that failing corporate governance and compensation practices and underperforming earnings would not be accepted, Land & Buildings Founder and Chief Investment Officer Jon Litt said in a statement.

Presentations issued in the past week by Land & Buildings and QTS have ratcheted up the tensions.

“The misleading claims the company made (in its presentation) - and, just as importantly, the facts they did not address - are quite telling,” Litt said. “QTS’ response is the latest in a pattern of actions by the company and its Board of Directors to divert shareholders’ attention away from the manner in which Mr. Williams and the board have created a culture of self-enrichment with absolutely zero accountability - all at the expense of the true owners of the company.”

A message left Tuesday for QTS was not immediately returned.

a man posing for a picture: Jon Litt, the founder and chief investment officer of hedge fund Land and Buildings stands in the firm’s offices on at 1 Landmark Square in Stamford, Conn., on June 14, 2017.© Provided by Hearst Communications, Inc Jon Litt, the founder and chief investment officer of hedge fund Land and Buildings stands in the firm’s offices on at 1 Landmark Square in Stamford, Conn., on June 14, 2017.

QTS provides data-center solutions across more than 6 million square feet of owned “mega scale” data center space throughout North America, according to its website.

Many of Land & Buildings’ misgivings center on QTS’ executive compensation structure. Williams’ employment agreement requires the company to nominate him as board chairman and allows him to “walk away” with more than $8.8 million, if that condition were not met, according to Litt.

“Mr. Williams and the board wants investors to believe that management compensation is aligned with performance, despite compensation being discretionary, and despite the fact that compensation has risen even in the face (of) shareholder total return underperformance relative to QTS’ Data Center peers,’” Litt said.

Jon Litt, the founder and chief investment officer of hedge fund Land and Buildings works in the firm’s offices on at 1 Landmark Square in Stamford, Conn., on June 14, 2017.© Provided by Hearst Communications, Inc Jon Litt, the founder and chief investment officer of hedge fund Land and Buildings works in the firm’s offices on at 1 Landmark Square in Stamford, Conn., on June 14, 2017.

Land and Buildings defines those peers as four real estate investment trusts that own, operate and develop data centers, with a “significant” U.S. footprint: CyrusOne, CoreSite, Digital Realty Trust and Equinix.

On Tuesday, Equinix shares closed around $410, followed by around $105 for CoreSite and Digital Realty Trust and about $51 for CyrusOne.

In comparison, QTS shares closed Tuesday around $36, down about 40 percent from a 52-week high of $61.55.

In the past couple of years, Land and Buildings has mounted campaigns to shake up the management of other firms, including Hudson’s Bay Co., the owner of Saks Fifth Avenue and Lord & Taylor; and Taubman Centers, the company that owns the Stamford Town Center mall.

Last month, Litt announced he would again seek a place on the Taubman board.

a man standing in front of a window posing for the camera: Jon Litt, founder and chief investment officer of hedge fund Land and Buildings stands in the firm’s offices on at 1 Landmark Square in Stamford, Conn., on June 14, 2017.© Provided by Hearst Communications, Inc Jon Litt, founder and chief investment officer of hedge fund Land and Buildings stands in the firm’s offices on at 1 Landmark Square in Stamford, Conn., on June 14, 2017.

In Taubman’s 2017 board election, Litt and an allied professor from the University of Delaware ran unsuccessfully for seats in a “proxy contest” to shake up Taubman’s board.

To avoid another proxy contest in this year’s election, Litt has suggested the company promptly appoint him to the board to show its commitment to listening to shareholders.

As of last year, Land and Building held an ownership stake of about 1.5 percent in Taubman, whose portfolio includes 27 shopping centers in the U.S. and east Asia.

Taubman announced last November the addition of two new directors, but Litt has questioned the impact of those changes.

pschott@scni.com; 203-964-2236; twitter: @paulschott

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