Item 8.01 Other Events
As previously disclosed, on June 7, 2021, QTS Realty Trust, Inc., a Maryland
corporation ("QTS" or the "Company"), QualityTech, LP, a Delaware limited
partnership and the operating partnership of the Company (the "Partnership"),
Volt Upper Holdings LLC, a Delaware limited liability company ("Parent"), Volt
Lower Holdings LLC, a Delaware limited liability company ("Merger Sub I"), and
Volt Acquisition LP, a Delaware limited partnership ("Merger Sub II") entered
into an Agreement and Plan of Merger (the "Merger Agreement"). Parent, Merger
Sub I and Merger Sub II are affiliates of Blackstone Infrastructure Partners
L.P. and BREIT Operating Partnership L.P., which are affiliates of Blackstone
Inc. Pursuant to the terms and subject to the conditions set forth in the Merger
Agreement, at the closing of the Mergers (as defined below) (the "Closing"),
Merger Sub II will merge with and into the Partnership (the "Partnership
Merger"), and, immediately following the Partnership Merger, the Company will
merge with and into Merger Sub I (the "Company Merger" and, together with the
Partnership Merger, the "Mergers"). Upon completion of the Partnership Merger,
the Partnership will survive and the separate existence of Merger Sub II will
cease (the "Surviving Partnership"). Upon completion of the Company Merger,
Merger Sub I will survive and the separate existence of the Company will cease
(the "Surviving Company"). A definitive proxy statement (the "proxy statement")
was filed with the Securities and Exchange Commission (the "SEC") by the Company
on July 21, 2021, in connection with, among other things, the Merger Agreement.
Certain Litigation
As previously disclosed in the proxy statement, two complaints were filed
against the Company between July 9, 2021 and July 15, 2021, seeking to enjoin
the proposed Mergers and to recover damages should the Mergers occur under the
captions Stein v. QTS Realty Trust, Inc., et al. (filed July 9, 2021, Southern
District of New York) and Waterman v. QTS Realty Trust, Inc. et al., (filed
July 15, 2021, Southern District of New York). Five additional lawsuits were
filed between July 26, 2021 and August 18, 2021 under the captions Reisbick v.
QTS Realty Trust, Inc. et al. (filed July 26, 2021, Southern District of New
York); Hardwick v. QTS Realty Trust, Inc. et al. (filed Aug. 4, 2021, Southern
District of New York); Lawrence v. QTS Realty Trust, Inc. et al. (filed Aug. 11,
2021, Northern District of Georgia); Reinhardt v. QTS Realty Trust, Inc. et al.
(filed Aug. 11, 2021, Northern District of Georgia); and Whitfield v. QTS Realty
Trust, Inc. et al. (filed Aug. 13, 2021, Eastern District of Pennsylvania),
which are substantially similar to the other two complaints. It is possible
additional lawsuits may be filed between the date of this Form 8-K and
consummation of the Mergers.
The Company believes that the disclosures set forth in the proxy statement
comply fully with all applicable law and denies the allegations in the pending
actions described above and thinks they are without merit. Nevertheless, in
order to moot plaintiffs' disclosure claims, avoid nuisance and possible expense
and business delays, and provide additional information to its stockholders, the
Company has determined voluntarily to supplement certain disclosures in the
proxy statement with the supplemental disclosures set forth below (the
"Supplemental Disclosures"). Nothing in the Supplemental Disclosures shall be
deemed an admission of the legal merit of the various litigation matters
described above, or of the necessity or materiality under applicable laws of any
of the disclosures set forth herein. To the contrary, the Company specifically
denies all allegations in the various litigation matters that any additional
disclosure was or is required or material.
SUPPLEMENTAL DISCLOSURES
The following supplemental disclosures should be read in conjunction with the
proxy statement, which should be read in its entirety. The inclusion in this
supplement to the proxy statement of certain information should not be regarded
as an indication that any of QTS or its affiliates, officers, directors or other
representatives, or any other recipient of this information, considered, or now
considers, it to be material, and such information should not be relied upon as
such. Defined terms used but not defined herein have the meanings set forth in
the proxy statement. For clarity, new text within restated paragraphs from the
proxy statement is highlighted with bold, underlined text, and deleted text
within restated paragraphs from the proxy statement is highlighted with
strikethrough text.
The disclosure in the section entitled "The Mergers-Background of the Mergers"
beginning on page 34 is hereby amended by:
Adding the following sentence to the end of the first full paragraph of page 35:
However, during these outreach efforts, between late 2019 and early 2021, the
Company entered into non-disclosure agreements with three parties (including
Blackstone), which agreements contained customary standstill restrictions, and
shared information and engaged in additional discussions with two others, as
discussed further below. None of these non-disclosure agreements contained a
"don't-ask don't-waive provision."
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The disclosure in the section entitled "The Mergers-Opinions of Our Financial
Advisors" under the heading "Opinion of Morgan Stanley & Co. LLC" beginning on
page 50 of the proxy statement is hereby amended by:
Amending and restating the sixth paragraph on page 53 as follows:
Morgan Stanley then calculated an implied terminal value of the Company as of
December 31, 2024 by applying a range of multiples of 19.0x to 25.0x derived
based on its professional judgment that the range should be similar to the range
of multiples in the Comparable Companies Analysis, to calendar year 2025
estimated AFFO per share of $3.62 and discounting by a range of discount rates
from 5.5% to 7.5% representing a 1% band around the Company's cost of equity of
6.5%. This present value of the implied terminal value of the Company was then
added to the implied present value of the estimated future dividend payments per
share.
Amending and restating the third paragraph on page 55 as follows:
For each of the transactions listed above, Morgan Stanley reviewed, among other
things, the implied fully-diluted enterprise value of the target company as a
multiple of analyst estimates of the next-twelve-months EBITDA of the target
company. Based on the analysis of such metrics for the transactions noted above,
Morgan Stanley selected a representative range of 20.0x to 23.0x based on its
professional judgment that was applied to management's next-twelve-months EBITDA
to arrive at implied fully-diluted enterprise values. Morgan Stanley then
subtracted an aggregate net debt and Series A preferred stock balances of $1,501
million as of March 31, 2021 based on the Company's publicly disclosed financial
information (including with respect to issuances of forward equity) to arrive at
implied fully-diluted equity values. Morgan Stanley then divided the implied
fully-diluted equity values by 92,381,915, the number of fully-diluted shares
(as provided by the Company), which resulted in the following implied per share
equity value range of the shares of Class A common stock, as compared to the
merger consideration of $78.00 per share:"
Amending and restating the fifth paragraph on page 56 as follows:
Morgan Stanley performed a forward share price analysis using management's
quarterly projections of AFFO per share and a range of AFFO multiples of 18.4x
to 24.5x based on its professional judgment that the range should be similar to
the range of multiples in the Comparable Companies Analysis, to project the
closing price of the Class A common stock forward to June 30, 2022, and then
calculated the present values of those prices back to June 30, 2021 using a
discount rate of 6.5%, which represented the mid-point of the Company's cost of
equity utilizing the capital asset pricing model. This resulted in the following
implied value range of the shares of Class A common stock, as compared to the
merger consideration of $78.00 per share:
Amending and restating the first paragraph on page 58 as follows:
Morgan Stanley has provided financial advisory and financing services to the
Company and its affiliates and, in the 30 months prior to May 7, 2021, has
received fees of approximately $2 million to $5 million in the aggregate in
connection with such services. Morgan Stanley has provided financial advisory
and financing services to Blackstone and its affiliates (including certain
majority-controlled affiliates and majority-controlled portfolio companies of
Blackstone identified by Morgan Stanley and disclosed to us), such services
generally including M&A advisory, equity and debt capital market transactions,
and loans, and, in the 24 months prior to May 7, 2021, received fees of
approximately $250 million to $300 million in connection with such services (the
majority of which fees were received for financing services). Morgan Stanley has
advised us that it was providing, and may also seek in the future to provide,
financial advisory and financing services to the Company unrelated to the
mergers and transactions contemplated by the merger agreement, Blackstone or
their respective affiliates (including portfolio companies of Blackstone and its
affiliates) and would expect to receive fees for the rendering of those
services. The information disclosed in this paragraph is based upon information
provided to us by Morgan Stanley.
The disclosure in the section entitled "The Mergers-Opinions of Our Financial
Advisors" under the heading "Opinion of Jefferies LLC" beginning on page 58 of
the proxy statement is hereby amended by:
Amending and restating the third paragraph on page 62 as follows:
Discounted Cash Flow Analysis. Jefferies performed a discounted cash flow
analysis of the Company by calculating the estimated present value of the
stand-alone unlevered, after-tax free cash flows that the Company was forecasted
to generate during the fiscal years ending December 31, 2021 through
December 31, 2025 based on the financial projections of the Company. For
purposes of this analysis, stock-based compensation was treated as a cash
expense. Implied terminal values of the Company were derived by applying to the
Company's terminal year estimated EBITDA a selected range of multiples of 21.0x
to 25.0x based on its professional judgment that the range should be similar to
the multiples in the Selected Public Companies Analysis. The present values (as
of July 1, 2021) of the cash flows and terminal values were then calculated
using a selected discount rate range of 5.6% to 7.6% representing a 1% band
around the Company's weighted average cost of capital of 6.6% as determined
utilizing the capital asset pricing model. This analysis indicated an
approximate implied per share equity value reference range for the Company of
$57.66 to $84.77, as compared to the implied merger consideration of $78.00.
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Amending and restating the last paragraph on page 62 as follows:
Dividend Discount Model Analysis. Jefferies performed a dividend discount model
analysis of the Company by calculating the present value of estimated future
dividend payments per share and terminal value of the company. Jefferies
calculated ranges of implied equity values per share of Class A common stock,
based on a dividend discount analysis utilizing Company management projections
of cash flows, dividends per share and expected capital structure from June 30,
2021 through December 31, 2025. The dividends per share from June 30, 2021 to
December 31, 2025 were discounted to present values (as of July 1, 2021) using a
range of discount rates from 6.7% to 8.7% representing a 1% band around the
Company's cost of equity of 7.7% as determined utilizing the capital asset
pricing model. Implied terminal values of the Company were derived by applying
to the Company's terminal year estimated EBITDA a selected range of multiples of
21.0x to 25.0x similar to the range of multiples in the Selected Public
Companies Analysis. The present value of the implied terminal value of the
Company was then added to the implied present value of the estimated future
dividend payments per share. This analysis indicated an approximate implied per
share equity value reference range for the Company of $58.82 to $77.97, as
compared to the merger consideration of $78.00.
-END OF SUPPLEMENT TO DEFINITIVE PROXY STATEMENT-
Cautionary Note Regarding Forward-Looking Statements
Some of the statements contained in this Current Report on Form 8-K constitute
forward-looking statements within the meaning of the federal securities laws.
Forward-looking statements relate to expectations, beliefs, projections, future
plans and strategies, anticipated events or trends and similar expressions
concerning matters that are not historical facts. In some cases, you can
identify forward-looking statements by the use of forward-looking terminology
such as "may," "will," "should," "expects," "intends," "plans," "anticipates,"
"believes," "estimates," "predicts," or "potential" or the negative of these
words and phrases or similar words or phrases which are predictions of or
indicate future events or trends and which do not relate solely to historical
matters. You can also identify forward-looking statements by discussions of
strategy, plans or intentions.
The forward-looking statements contained in this Current Report on Form 8-K
reflect the Company's current views about future events and are subject to
numerous known and unknown risks, uncertainties, assumptions and changes in
circumstances that may cause actual results and future events to differ
significantly from those expressed in any forward-looking statement. The
following factors, among others, could cause actual results and future events to
differ materially from those set forth or contemplated in the forward-looking
statements: the ability of the Company to obtain stockholder approval required
to consummate the proposed transaction; the satisfaction or waiver of other
conditions to Closing in the Merger Agreement for the proposed transaction;
unanticipated difficulties or expenditures relating to the proposed transaction;
the response of customers and business partners to the announcement of the
proposed transaction; potential difficulties in employee retention as a result
of the proposed transaction; the occurrence of any event, change or other
circumstances that could give rise to the termination of the proposed
transaction; the outcome of legal proceedings that have been and may be
instituted against the Company, its directors and others related to the proposed
transaction; adverse economic or real estate developments in the Company's
markets or the technology industry; global, national and local economic
conditions; risks related to the Company's international operations; risks
related to the COVID-19 pandemic, including adverse impacts on the economy and
our and our customers' business; significant increases in construction and
development costs; the increasingly competitive environment in which the Company
operates; defaults on, or termination or non-renewal of, leases by customers;
decreased rental rates or increased vacancy rates; increased interest rates and
operating costs, including increased energy costs; dependence on third parties
to provide Internet, telecommunications and network connectivity to the
Company's data centers; the Company's failure to qualify and maintain its
qualification as a REIT; environmental uncertainties and risks related to
natural disasters; financial market fluctuations; changes in real estate and
zoning laws, revaluations for tax purposes and increases in real property tax
rates; and limitations inherent in the Company's current and any future joint
venture investments, such as lack of sole decision-making authority and reliance
on the Company's partners' financial condition.
While forward-looking statements reflect the Company's good faith beliefs, they
are not guarantees of future performance or events. Any forward-looking
statement speaks only as of the date on which it was made. The Company disclaims
any obligation to publicly update or revise any forward-looking statement to
reflect changes in underlying assumptions or factors, of new information, data
or methods, future events or other changes. For a further discussion of these
and other factors that could cause the Company's future results to differ
materially from any forward-looking statements, see the section entitled "Risk
Factors" in the Company's Annual Report on Form 10-K for the year ended
December 31, 2020 and in the other periodic reports the Company files with the
SEC.
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No Offer or Solicitation
This communication does not constitute an offer to sell or the solicitation of
an offer to buy any securities or a solicitation of any vote or approval, nor
shall there be any sale of securities in any jurisdiction in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such jurisdiction. No offer of securities shall
be made except by means of a prospectus meeting the requirements of Section 10
of the Securities Act of 1933, as amended.
Important Information for Investors and Stockholders
This Current Report on Form 8-K relates to the proposed merger transaction
involving the Company. In connection with the proposed transaction, on July 21,
2021, the Company filed with the SEC a definitive proxy statement on Schedule
14A. Promptly after filing its definitive proxy statement with the SEC, the
Company mailed the definitive proxy statement and a proxy card to each
stockholder entitled to vote at the special meeting relating to the proposed
transaction. INVESTORS AND SECURITY HOLDERS OF THE COMPANY ARE URGED TO READ THE
DEFINITIVE PROXY STATEMENT (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) AND
ANY OTHER RELEVANT DOCUMENTS IN CONNECTION WITH THE TRANSACTION THAT THE COMPANY
FILES WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN
IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. The definitive proxy
statement and any other documents filed by the Company with the SEC may be
obtained free of charge at the SEC's website at www.sec.gov or at the Company's
website at www.qtsdatacenters.com or by writing to QTS Realty Trust, Inc., Attn:
Investor Relations, 12851 Foster Street, Overland Park, KS 66213. The Company
and its directors and certain of its executive officers may be deemed to be
participants in the solicitation of proxies from the Company's stockholders with
respect to the proposed transaction. Information about the Company's directors
and executive officers and their ownership of the Company securities is set
forth in the Company's proxy statement for its 2021 annual meeting of
stockholders on Schedule 14A filed with the SEC on March 18, 2021. To the extent
holdings of the Company's securities by directors and executive officers have
changed since the amounts disclosed in the Company's proxy statement, such
changes have been or will be reflected on Statements of Changes in Beneficial
Ownership on Form 4 filed with the SEC. You can obtain free copies of these
documents at the SEC's website at www.sec.gov or by accessing the Company's
website at www.qtsdatacenters.com. Additional information regarding the identity
of participants in the solicitation of proxies, and their direct or indirect
interests in the proposed transaction, by security holdings or otherwise, is set
forth in the definitive proxy statement and other materials to be filed with the
SEC in connection with the proposed transaction.
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