QTS Realty Trust (NYSE: QTS) today released its Preliminary Proxy Statement (PREM14A) related to its $10bn or $78.00 per common share take-private through a merger with entities of Blackstone Infrastructure Partners and Blackstone Real Estate Income Trust (BREIT). Below we summarize notable events and key takeaways regarding the background and process whereby Blackstone acquires QTS Realty Trust through a merger.

Preface to the Merger – QTS Realty Trust’s Rationale

QTS Realty’s overall premise for considering a sale is that building and managing data centers is an inherently capital-intensive business, which could be more optimally executed under private ownership. Indeed, to support QTS Realty’s signed leasing activity since 2019 and the resulting growth in its booked-not-billed backlog, the company anticipates making ~$1bn in capital expenditures during 2021.

Since its initial public offering (IPO), QTS Realty has funded its capital needs primarily from the equity and debt capital markets. To this end, since the beginning of 2020, the company has raised ~$860m of gross proceeds through equity issuances.

Because capital is often deployed prior to when the associated revenue commences on a signed lease, equity offerings for development activities put increased pressure on the company’s near-term Operating Funds from Operations (OFFO) per share metrics. This dynamic makes it particularly challenging for OFFO guidance provided by public companies in the data center industry, like QTS Realty, to meet investors’ expectations.

Overall, these challenges formulate part of QTS Realty’s rationale for consummating the transaction with Blackstone.

Background of the Merger – Blackstone Acquires QTS Realty Trust

Lead-Up to Formal Engagement – Blackstone Acquires QTS Realty Trust

From late 2018 through early 2021, QTS Realty’s management, in coordination with Jefferies (an investment bank), had discussions with ~30 potential third-party capital providers. Indeed, Blackstone was one of the capital providers contacted, with an initial meeting taking place on December 11, 2018.

During QTS’ outreach, between late 2019 and early 2021, the company shared information and/or engaged with five parties, including Blackstone.

In February 2019, Blackstone and QTS Realty had a follow-up call. However, these initial discussions did not progress further until QTS Realty and Blackstone re-engaged in September 2020.

As part of the merger process description below, Blackstone and QTS Realty’s representatives included the following:

  • Blackstone: legal advisor was Simpson Thacher
  • QTS Realty: financial advisors were Jefferies and Morgan Stanley. Additionally, QTS Realty’s legal advisors were Hogan Lovells and Paul Weiss

Developments in 2020 – Blackstone Acquires QTS Realty Trust

  • September 10, 2020: Jeff Berson, Chief Financial Officer of QTS, had a call with Blackstone regarding potential capital funding opportunities
  • September 24, 2020: Chad Williams, Chief Executive Officer of QTS, and Jeff Berson met with Blackstone in Connecticut. These discussions included potential opportunities for joint ventures at the asset-level, as well as private investment in public equity (PIPE) transactions, and build-to-suit (BTS) investments
  • November 13, 2020: QTS Realty and Blackstone executed a non-disclosure agreement (NDA)
  • November 19, 2020: QTS’ management team met with Blackstone to discuss the company, its operations, and potential capital funding scenarios
  • December 21, 2020: QTS’ management team and Blackstone had a call to review its five-year projections for 2021 through 2025

Negotiations in 2021 – Blackstone Acquires QTS Realty Trust

  • February 2021: QTS hosted Blackstone for visits at several of its data centers and held meetings to discuss due diligence
  • March 2, 2021: Blackstone called Jefferies and indicated that it wanted to explore opportunities beyond the potential capital funding structures. Additionally, Blackstone requested that QTS expand the scope of due diligence to permit an in-depth review on a full-company basis
  • March 9, 2021: QTS Realty opened a virtual data room and provided additional financial and due diligence information to Blackstone, including updated financial projections
  • March 28, 2021: QTS Realty’s management team reviewed the financial projections with Blackstone
  • April 28, 2021: Blackstone orally communicated to Jefferies that it had substantially completed its business due diligence
  • May 6, 2021: Philip Trahanas (a member of QTS’ board of directors), Chad Williams, and Jeff Berson met with Blackstone in New York over dinner. During the discussion, Blackstone indicated that it would make a proposal to acquire QTS Realty, with funding from its long-term perpetual capital vehicles
  • May 7, 2021: QTS Realty received a written proposal from Blackstone for an all-cash acquisition of the company at a purchase price of $75.00 per common share. Furthermore, Blackstone would proceed without any financing contingency
  • May 12, 2021: Philip Trahanas, Jefferies, and Morgan Stanley, informed Blackstone that its proposed price was not sufficient. However, the board of directors would consider further engagement with Blackstone if it improved its price
  • May 12, 2021 (later in the day): Blackstone orally communicated to Jefferies and Morgan Stanley that it was prepared to increase its purchase price from $75.00 to $75.75 per common share
  • May 14, 2021: Philip Trahanas, Jefferies, and Morgan Stanley, orally communicated to Blackstone that Blackstone would need to increase its proposal to $78.00 per common share in order to continue discussions

Price Agreed in 2021 – Blackstone Acquires QTS Realty Trust

  • May 14, 2021 (later in the day): Blackstone orally communicated a revised proposal including an increase in the acquisition price to $78.00 per common share, amongst other concessions
  • May 16, 2021: QTS Realty’s board of directors concluded that it was in the best interests of the company and its stockholders to continue negotiations with Blackstone. Specifically, QTS would work towards formalizing a definitive agreement
  • May and early June 2021: QTS Realty’s management team uploaded to a virtual data room additional confirmatory due diligence information. Specifically, this included information regarding the company and responses to due diligence requests by Blackstone and its advisors
  • May 21, 2021: a draft of a merger agreement prepared by QTS Realty’s legal advisors, Paul Weiss and Hogan Lovells, was sent to Blackstone’s legal advisor, Simpson Thacher
  • Late May and June 2021: the parties, with the assistance of their legal advisors and financial advisors, made progress towards finalizing the merger agreement and completing due diligence
  • June 3, 2021: Blackstone met with Chad Williams, his legal advisor and Jeff Berson over dinner in New York
  • June 6, 2021: QTS’ board of directors unanimously approved the proposed transaction. Subsequently, QTS communicated this approval to Blackstone
  • June 7, 2021: QTS Realty and Blackstone executed the merger agreement. Chad Williams and Blackstone executed the support agreement and the letter agreement
  • June 7, 2021: QTS Realty and Blackstone issued a joint press release publicly announcing the execution of the merger agreement before market opening

Background of the Merger – Key Events from Other Interested Parties

Party A – Global Private Equity Firm

  • Late 2019: QTS Realty’s management team had a discussion with a global private equity firm. The purpose of this discussion was to introduce the firm to QTS Realty, its business, and potential capital needs
  • March 2020: QTS Realty entered into a non-disclosure agreement (NDA) with Party A
  • September 24, 2020: QTS Realty’s management team met with Party A. At this meeting, the parties discussed potential investment and funding opportunities for potential acquisitions by QTS
  • November 5, 2020: QTS Realty’s management team and Party A met to review financial information provided by the company
  • November 30, 2020: Party A informed QTS Realty that it was not interested in pursuing an investment opportunity. This was because Party A could not invest in the company at an attractive valuation

Party B – Infrastructure Investment Manager

  • March 2020: QTS Realty entered into a non-disclosure agreement (NDA) with Party B. Subsequently, Party B engaged in due diligence
  • Summer 2020: Based on capital limitations from Party B, discussions between the parties ended without proceeding towards any investment transaction

Party C – Pension Fund

  • January 20, 2021: QTS Realty and Jefferies met with Party C
  • February 5, 2021: QTS Realty provided financial information regarding the company to Party C. Subsequently, the parties’ representatives held a review of this financial information during a meeting
  • February 9, 2021: Party C informed QTS Realty that it was no longer interested in pursuing a corporate-level investment. This was because Party C could not invest in the company at an attractive valuation

Party D – Pension Fund

  • January 26, 2021: QTS Realty and Jefferies had a meeting with Party D. The purpose of this meeting was to introduce Party D to QTS. Additionally, the meeting allows for a discussion of potential asset-level joint venture and corporate-level investment opportunities
  • Following this meeting, Party D declined to have further discussions with QTS Realty regarding investment opportunities

Merger Process In-Depth – Read More

Want to read more from our “Merger Process In-Depth” series? Check-out our coverage on the merger processes for Digital Colony’s take-private of Boingo Wireless and Cyxtera’s combination with Starboard Value.

Mary Zhang covers Data Centers for Dgtl Infra, including Equinix (NASDAQ: EQIX), Digital Realty (NYSE: DLR), CyrusOne, CoreSite Realty, QTS Realty, Switch Inc, Iron Mountain (NYSE: IRM), Cyxtera (NASDAQ: CYXT), and many more. Within Data Centers, Mary focuses on the sub-sectors of hyperscale, enterprise / colocation, cloud service providers, and edge computing. Mary has over 5 years of experience in research and writing for Data Centers.


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