Today Land and Buildings, an investment firm specializing in publicly
traded real estate and real estate related securities, who collectively
with Scot Sellers – the leader of Archstone-Smith Trust for over 15
years, culminating with the sale of the company for $22 billion near the
peak of the market in 2007 – is a significant shareholder of Associated
Estates Realty Corporation (“AEC”, “Associated Estates”, or the
“Company”), released a public letter to the shareholders of the Company
discussing its` intention to nominate seven highly-qualified,
independent directors to replace the Board of Directors (the “Board”) of
Associated Estates. These candidates, given their range of deep
experience across the multifamily and real estate industries, as well as
their commitment to best practices in corporate governance, are ideally
suited to maximize shareholder value at AEC:
-
Marcus E. Bromley – Former public multifamily REIT CEO and
Chairman at Gables Residential Trust
-
Michael J. DeMarco – Former investment banker and public office
REIT executive at Vornado Realty Trust (NYSE: VNO)
-
Charles M. Elson – Professor and leading authority on corporate
governance
-
Dana K. Hamilton – Former public multifamily REIT EVP of
Operations at Archstone-Smith Trust
-
Gregory F. Hughes – Former public REIT CFO at SL Green (NYSE:
SLG) with experience across numerous real estate sectors
-
Jonathan Litt – Founder/CIO of Land and Buildings and former
top-ranked sell-side REIT analyst
-
R. Scot Sellers – Former public multifamily REIT CEO and CIO at
Archstone-Smith Trust
The full text of the letter can be found below:
Full text of the letter follows:
November 17, 2014
Dear Fellow Associated Estates Shareholders:
Land and Buildings is an investment firm founded in 2008 that invests in
publicly traded real estate companies. Collectively with Scot Sellers,
who has a best in class track record of creating value in the apartment
business as the leader of Archstone-Smith Trust for over 15 years,
culminating with the sale of the company for $22 billion near the peak
of the market in 2007, our group owns more than 2% of the outstanding
Associated Estates Realty Corporation (“AEC”, “Associated Estates”, or
the “Company”) common stock. Pursuant to this letter, we are indicating
publicly our intention to nominate seven highly-qualified, independent
directors to replace the Board of Directors (the “Board”) at Associated
Estates in order to seek to unlock the $29 per share of estimated net
asset value (“NAV”) embedded in the Company. Such an increase would
represent approximately a 50% increase over the existing market value of
the stock.
We believe that Associated Estates’ 20-plus year history of material
underperformance and shareholder value destruction can be traced back to
one central issue: an entrenched, intertwined and stale Board of
Directors that lacks what we view as true independence and relevant
experience and has not, in our view, exerted effective oversight over a
management team led by the Company’s Chairman of the Board and CEO Jeff
Friedman that has fed at the shareholder trough far too long.
Significant change at the Company is required as the status quo is
unacceptable:
-
AEC shares prior to investor activism were 33% below its November 1993
IPO price of $221
-
AEC has traded at an average 28% discount to net asset value over the
trailing 10 years
-
FFO per share has fallen 4% since 2008 as the Company more than
tripled its share count
-
Jeff Friedman’s AEC stock ownership decreased from 6.75% in 2004 to
1.5% today
-
The three member Executive committee is comprised of Jeff Friedman,
his brother-in-law, and AEC’s long-time lawyer
-
Jeff and his sons Jason and Matthew received $5.9 million from AEC in
2013; the family can make more money in ~3 years running the company
than Jeff’s entire stake is worth
As a result, Land and Buildings has identified an exceptional group of
seven individuals who we intend to nominate as candidates for election
to the Board of Directors of Associated Estates at the Company’s 2015
Annual Meeting. We believe these seven highly-qualified and completely
independent nominees would be ideally suited to maximize shareholder
value at AEC given their deep experience across the multifamily and real
estate industries, as well as their commitment to the best practices in
corporate governance.
The Land and Buildings team has a deep history as global real estate
investors and analysts in both public real estate securities and direct
property. I have been closely involved with management in most of the
public REITs since 1992 as a former top-ranked sell-side property equity
analyst and have known Jeff Friedman since the early 1990s, during his
over 20 year tenure as Chairman and CEO of the Company. Land and
Buildings was intimately involved with the management and Board of BRE
Properties as the company explored all strategies to maximize
shareholder value, and, following Land and Buildings’ nomination of a
majority slate of Directors, BRE was acquired by Essex Property Trust
(NYSE: ESS) in a transaction valued at greater than $6 billion where
shareholders saw their BRE shares trade to NAV.
We believe the net asset value of Associated Estates is $29 per share2,
indicating approximately 50% upside over the existing market value of
the stock. Property due diligence in conjunction with multifamily real
estate brokers, private investors and other third party consultants has
led to our high conviction in the significant underlying real estate
value of AEC. Given the Company’s high quality apartment assets and the
potential for significant improvements in operations, financial
controls, capital allocation and corporate governance, we believe a
well-regarded management team and Board could cause the stock to trade
at a premium to NAV and have outsized NAV growth going forward.
The Status Quo is Unacceptable
-
Persistent Undervaluation and Fundamental Underperformance
-
AEC has traded at average 23%, 20%, and 28% discounts to NAV over
the trailing three, five, and ten years respectively3
while the Company’s proxy peers have on average traded near NAV
over the same time periods4
-
Over the trailing 20 years, AEC has the lowest total return of its
proxy peers and has lagged the proxy peer total return average by
over 800%5
-
AEC shares prior to investor activism were 33% below its November
1993 IPO price of $22
-
Prior to the Kohlberg Kravis Roberts & Co (“KKR”) stake
disclosure, which is now 3.88%, AEC closed at $14.65 on
November 14th, 2013; as of November 12th,
2014 AEC closed at $19.48
-
In contrast, apartment REIT AvalonBay Communities (NYSE: AVB)
IPO’d at $20 per share in March 1993 and closed at $156.93 as
of November 12th, 2014
-
AEC annual earnings results have only beaten initial guidance in
one of the past six years6
-
2014 was a "miss and lower" year as funds from operations (“FFO”)
per share and core same-store growth guidance were both lowered
despite year-to-date national apartment rental growth being
stronger than in any other post-recession year;7 AEC
once again missed consensus FFO expectations in the third quarter
of 2014
-
A Failure in Corporate Governance
-
The three member Executive committee is comprised of Jeff
Friedman, his brother-in-law, and AEC’s long-time lawyer and the
Executive committee “…possesses the power of the Board of
Directors in the management of the business and affairs of the
Company…”;8 given the clear lack of independence, in
our view, it is no wonder that shareholder value has not been
maximized
-
None of the external AEC directors have experience in high-quality
apartment operations, the average tenure is over 14 years and Jeff
Friedman has been combined Chairman of the Board and CEO since 1993
-
All seven incumbent directors are based in Cleveland, which only
provides a narrow view of the relevant market given that 90% of
AEC’s NOI is generated outside Cleveland
-
Green Street Advisors gives AEC a 0 out of 25 for its “Conduct”
score as part of the research firm’s Corporate Governance Scorecard
-
An ISS Governance QuickScore of 8 out of 10 indicates higher
governance risk, with 10 being the worst
-
The 4% ownership limit helps entrench management and the Board
-
Friedman Family: Feeding at the Trough
-
Jeff and his sons Jason and Matthew Friedman received $5.9 million
in combined compensation from AEC in 2013; given that run-rate the
Friedmans could make more money in ~3 years running the company
than Jeff’s entire stake in the Company is currently worth
-
Jason Friedman has served as Senior Vice President,
Acquisitions and Development while Matthew Friedman (Jason's
brother) has earned millions of dollars under Jason's watch as
a real estate broker for AEC real estate transactions in a
clear conflict of interest
-
Jeff Friedman has been a consistent seller of AEC stock with his
ownership of AEC decreasing from 6.75% in 2004 to 1.5% of shares
outstanding today9
-
Jeff Friedman appears to us to refuse to even consider a sale of
the Company even if it is in the best interest of shareholders
-
“Selling the company is not what we're about doing.” –
Jeff Friedman, First Quarter 2014 Earnings Conference Call
-
Bloated G&A at the Expense of Shareholders
-
11% general and administrative (“G&A”) expense as a percent of
revenue for AEC vs. 4% proxy peer average; AEC’s G&A as a
percent of revenue was just 4% in 200210
-
2.1% CEO compensation as a percent of revenue is more than 4
times larger than the proxy peer average and more than 60%
higher than similarly sized REITs on average across all sectors11
-
Value-Destroying Capital Allocation
-
FFO per share has fallen 4% since 2008 as the Company more
than tripled its share count through five massively dilutive
equity issuances at significant discounts to NAV totaling over
$500 million; meanwhile proxy peers saw FFO per share increase
26% over the same time period12
-
After three value-destroying equity raises in 2010, Jeff
Friedman stated on his fourth quarter 2010 earnings conference
call, “We don’t need to issue equity and we won’t until our
stock price is more reflective of NAV”
-
AEC subsequently issued two more large blocks of equity in
2012 and 2013 at steep discounts to NAV
Board Nominees: Highly-Qualified and Independent
The Land and Buildings slate of directors would be able to provide fresh
perspectives and significant value-add across all facets of Associated
Estates. Scot Sellers ran what we view as the highest quality
apartment company in the REIT universe and maximized value by selling
his company twice. Dana Hamilton ran operations for that same
REIT, Archstone-Smith Trust, while the company revolutionized apartment
rental revenue management with LRO (Lease Rent Optimization) software. Marc
Bromley was the CEO and Chairman of Gables Residential Trust, a
well-respected apartment REIT focused in the Sunbelt where AEC now
derives nearly half of its portfolio value. Greg Hughes was CFO
at SL Green, a company we believe is well known for its financial acumen
and creativity. Mike DeMarco further bolsters the capital markets
savvy of the Board nominees as a former investment banker and executive
at Vornado Realty Trust with long tenure in the public REIT space. Charles
Elson, a corporate governance guru and advocate, helps round out our
proposed slate and would provide AEC with much needed counsel on how to
run a company for the benefit of shareholders.
As detailed above, we view AEC as a case study in how not
to maximize value at a REIT. Numerous operational, financial and
strategic changes need to be made to reverse course, improve earnings
growth and have AEC shares trade at or above NAV. And we believe
strongly that our candidates would make up the Board to do it.
The seven Land and Buildings Nominees are as follows*:
-
Marcus E. Bromley – Former public multifamily REIT CEO and Chairman at
Gables Residential Trust
-
Michael J. DeMarco – Former investment banker and public office REIT
executive at Vornado Realty Trust (NYSE: VNO)
-
Charles M. Elson – Professor and leading authority on corporate
governance
-
Dana K. Hamilton – Former public multifamily REIT EVP of Operations at
Archstone-Smith Trust
-
Gregory F. Hughes – Former public REIT CFO at SL Green (NYSE: SLG)
with experience across numerous real estate sectors
-
Jonathan Litt – Founder/CIO of Land and Buildings and former
top-ranked sell-side REIT analyst
-
R. Scot Sellers – Former public multifamily REIT CEO and CIO at
Archstone-Smith Trust
*Additional biographical information below.
Significant Operational and Strategic Change
Required
Land and Buildings intends to nominate the type of Board we believe
would lead Associated Estates to becoming a best in class REIT that
trades at a premium to net asset value. Land and Buildings believes
numerous changes need to be made across the company to right the ship
and turn this undervalued underperformer into the next great apartment
REIT.
Operational and Capital Allocation Improvements
-
Engage in a full operational review to maximize rental revenue in line
with the best practices of Class A apartment REITs that several of the
Board nominees pioneered
-
Seek to eliminate unnecessary operating expenses at the property level
-
Reduce bloated G&A expense that has been amplified by the multiple
Friedman family members on the dole
-
Re-assess all current and future development, acquisition and capital
spending activity given the Company’s current inferior cost of capital
-
Halt further equity issuances below NAV except in the most extenuating
of circumstances
-
Buy back stock and sell assets as long as the Company continues to
trade materially below NAV
Best in Class Governance
-
Align senior management compensation more closely with shareholder
total returns, particularly relative to peers
-
Increase insider ownership to better align with shareholders
-
Lift 4% ownership limit as it is an unnecessary, arcane restriction
that we believe is meant to deter shareholder activism
-
Explore strategic alternatives, including a sale of the Company, as
the most expedient avenue to maximize shareholder value; a REIT run
for the benefit of shareholders should be for sale everyday
Potential Upside for Shareholders
We believe the net asset value of Associated Estates as a going concern
is $29 per share indicating approximately 50% upside to intrinsic value.
Given the Company’s high quality apartment assets and the potential for
significant improvements in operations, financial controls, capital
allocation and corporate governance, a well-regarded management team and
Board could cause the stock to trade at a premium to NAV.
We look forward in the weeks and months ahead to discussing in greater
detail our views regarding Associated Estates and our strategic plan to
unlock significant shareholder value in the Company. The Director
nominees are united in their desire to enhance shareholder value and we
look forward to introducing them to shareholders and members of the
broader investment community in the near future.
Additional Biographical Information on Nominees
Marcus E. Bromley
Marc Bromley has over 30 years of experience in the real estate industry
ranging from his roles in finance and development in the private sector
to his role as CEO and director of large public real estate companies.
Mr. Bromley served as CEO and Chairman of the Board of Gables
Residential Trust (NYSE: GBP) from its IPO in 1993 to his retirement in
2001. He continued to serve on the $3 billion company’s board until its
sale in late 2005.
Prior to taking Gables public in 1993, Mr. Bromley was a division
partner for Trammell Crow Residential. His division was a leading
developer of apartment communities in the Southeast from 1982 to 1993.
Mr. Bromley served as a Director of three Cole Property Trust companies
based in Phoenix, Arizona. Mr. Bromley also serves on the board of
directors of The Shoptaw Group (TSG), a multifamily operation based in
Atlanta. He is a member of the Advisory Board of Nancy Creek Capital, a
private equity firm in Atlanta. In the past, Marc Bromley has served on
the Advisory Board for the School of Commerce, Economics and Politics
for Washington & Lee University.
Mr. Bromley is a 1971 Graduate of Washington & Lee University with a
degree in Economics and a 1973 graduate of the University of North
Carolina a where he received his MBA degree.
Michael J. DeMarco
Michael DeMarco has over 25 years of experience in the real estate
industry. He was most recently the Chief Investment Officer of CCRE, a
non-bank finance company and one the largest originators of CMBS. Mr.
DeMarco was also an Executive Vice President with Vornado Realty Trust
from 2010 to 2013. Prior to that Mr. DeMarco was a Partner at Fortress
Investment from 2007 to 2010, overseeing on a direct basis a number of
real estate operating companies that Fortress acquired. Additionally, he
was a senior Managing Director with Lehman Brothers from 1993 to 2007 in
the company’s real estate investment banking unit specializing in
Mergers and acquisitions, structured finance, and initial public
offerings. Mr. DeMarco’s client list included: Simon Property Group,
Vornado Realty Trust, SL Green, Douglas Emment, the Rouse Company and
many others.
Mr. DeMarco started his career at First Boston as an investment banker
in 1987 after graduating from the University of Chicago with an MBA in
Finance. Mr. DeMarco graduated from Pace University with BBA in
Accounting and a minor in History. He is also a Certified Public
Accountant.
Charles M. Elson
Charles M. Elson is the Edgar S. Woolard, Jr., Chair in Corporate
Governance and the Director of the John L. Weinberg Center for Corporate
Governance at the University of Delaware. He is also "Of Counsel" to the
law firm of Holland & Knight.
He formerly served as a Professor of Law at Stetson University College
of Law in St. Petersburg, Florida from 1990 until 2001. His fields of
expertise include corporations, securities regulation and corporate
governance. He is a graduate of Harvard College and the University of
Virginia Law School, and has served as a law clerk to Judges J. Harvie
Wilkinson III and Elbert P. Tuttle of the United States Court of Appeals
for the Fourth and Eleventh Circuits. He has been a Visiting Professor
at the University of Illinois College Of Law, the Cornell Law School,
and the University of Maryland School of Law, and was a Salvatori Fellow
at the Heritage Foundation in Washington, D.C. and is a member of the
American Law Institute.
Professor Elson has written extensively on the subject of boards of
directors. He is a frequent contributor on corporate governance issues
to various scholarly and popular publications. He served on the National
Association of Corporate Directors' Commissions on Director
Compensation, Director Professionalism, CEO Succession, Audit
Committees, Strategic Planning, Director Evaluation, Risk Governance,
Effective Lead Director, and Board Diversity and was a member of its
Best Practices Council on Coping With Fraud and Other Illegal Activity.
He served as well on that organization’s Advisory Council. He is Vice
Chairman of the ABA Business Law Section’s Committee on Corporate
Governance and was a member of its Committee on Corporate Laws.
He is presently a member of the Board of Directors of HealthSouth
Corporation, a healthcare services provider and Bob Evans Farms Inc., a
restaurant and food products company.
Dana K. Hamilton
Dana Hamilton was a key member of the management team that grew
Archstone from $100 million in residential real estate assets to more
than $20 billion—and into an industry-leading owner and operator of
apartments in the United States and abroad. She was President-Europe and
a member of the Executive Committee from May 2005 until February 2013,
and Executive Vice President national Operations and a member of the
Executive Committee from May 2001 until May 2005.
Ms. Hamilton oversaw many industry first’s during her nearly 20 years at
Archstone. She is credited with promoting “Archstone,” the first
national brand in the multifamily industry, and spearheading the
development of online leasing, outcomes-based credit scoring and highly
sophisticated revenue management—all of which have subsequently become
industry standards. In 2005, she took Archstone to Europe, helping to
pave the way for massive industry change in the German residential
market.
A graduate of Stanford University, Dana Hamilton received her MBA from
the University of California, Berkeley. Ms. Hamilton is a member of the
World Presidents Organization, Urban Land Institute and Golden Seeds.
Gregory F. Hughes
Gregory Hughes, from November 2010 to present, has served as a Principal
for Roscommon Capital Limited Partnership, a financial advisory and
investment firm. Mr. Hughes also served as the Chief Operating Officer
of SL Green Realty Corp. (NYSE: SLG) from 2007 to 2010 and its Chief
Financial Officer from 2004 to 2010, responsible for finance, capital
markets, investor relations and administration.
From 2004-2008 Mr. Hughes also served as Chief Credit Officer of
Gramercy Capital Corp. (NYSE: GKK). From 2002 to 2003, prior to joining
SL Green, Mr. Hughes was Managing Director and Chief Financial Officer
of the private equity real estate group at JP Morgan Partners. From 1999
to 2002, Mr. Hughes was a Partner and Chief Financial Officer of
Fortress Investment Group, an investment and asset management firm,
which managed a real estate private equity fund of approximately $900
million and a NYSE listed real estate investment trust with assets in
excess of $1.3 billion. While at Fortress Investment Group, Mr. Hughes
was actively involved in evaluating a broad range of real estate equity
and structured finance investments and arranged various financings to
facilitate acquisitions and fund recapitalizations. Mr. Hughes also
served as Chief Financial Officer of Wellsford Residential Property
Trust and Wellsford Real Properties, where he was responsible for the
firm’s financial forecasting and reporting, treasury and accounting
functions, capital markets and investor relations.
Mr. Hughes is a member of the Board of Directors and Chairman of the
Audit Committee for Gramercy Property Trust (NYSE: GPT). Mr. Hughes
received a B.S. degree in Accounting from the University of Maryland and
is a Certified Public Accountant.
Jonathan Litt
Jonathan Litt has over 22 years of experience as a global real estate
strategist and an investor in both public real estate securities and
direct property. Mr. Litt founded Land and Buildings in the summer of
2008 to take advantage of the opportunities uncovered by the global
property bubble. Previously, Mr. Litt was Managing Director and Senior
Global Real Estate Analyst at Citigroup where he was responsible for
Global Property Investment Strategy, coordinating a 44 person team of
research analysts located across 16 countries.
Mr. Litt was recognized as a leading analyst since 1995, achieving
prestigious Institutional Investor Magazine #1 ranking for 8 years and
top five ranking throughout the period. Mr. Litt also achieved top
ranking from Greenwich Associates since 1995. Before moving to the
sell-side in 1994, Mr. Litt worked on the buy-side investing in public
real estate securities and buying real property during his tenure at
European Investors and BrookHill Properties, where his career began in
1988. Mr. Litt serves on the Board of Directors at Mack-Cali (NYSE: CLI).
Mr. Litt graduated from Columbia University in 1987 with a BA in
Economics and NYU's Stern School of Business in 1990 with an MBA in
Finance. Mr. Litt can often be seen on CNBC or quoted in the Wall Street
Journal and other industry publications. He is also the president of a
not-for-profit, the Children with Dyslexia Scholarship Fund, which
provides children with scholarships to secondary schools that specialize
in dyslexia.
R. Scot Sellers
R. Scot Sellers served as the Chief Executive Officer of Archstone, one
of the world's largest apartment companies, from January 1997 through
February 2013, and prior to that was Archstone's Chief Investment
Officer since 1995. Under Mr. Sellers' leadership, Archstone moved from
being a mid-sized owner of apartments in secondary and tertiary cities
(San Antonio and El Paso), to becoming the largest publicly traded owner
of urban high rise apartments in the nation's premier cities (Manhattan,
Washington, D.C. and others).
During the 12 years Mr. Sellers led Archstone as a public company,
Archstone produced a total shareholder return of 723%, substantially in
excess of that of the NAREIT Apartment Index, which was 481% during the
same period. Scot increased the equity market capitalization of the
company from $767 million to $15.1 billion, while also paying over $3.7
billion of cash dividends to shareholders.
During Mr. Sellers' 29-year career in the apartment business, he has
been responsible for the development, acquisition and operation of over
$40 billion of apartment communities in over 50 different cities across
the United States. Mr. Sellers is a former member of the Executive
Committee of the National Multi-housing Council and served as the former
Chairman of the National Association of Real Estate Investment Trusts
from November 2005 to November 2006.
Scot serves on the Board of The Irvine Company, The Howard Hughes
Corporation, Inspirato and Habitat for Humanity International. He is a
member of the World Presidents Organization, Chief Executive Officers
(CEO – a YPO/WPO-related organization) and a former member of the World
Economic Forum.
Scot earned his MBA from Stanford in 1981, graduating as an Arjay Miller
scholar. He earned his undergraduate degree from Lewis & Clark College
in 1978, graduating summa cum laude.
Sincerely,
Jonathan Litt
Founder & CIO
Land and Buildings
About Land and Buildings:
Land and Buildings is a registered investment manager specializing in
publicly traded real estate and real estate related securities. Land and
Buildings seeks to deliver attractive risk adjusted returns by
opportunistically investing in securities of global real estate and real
estate related companies, leveraging its investment professionals' deep
experience, research expertise and industry relationships.
LAND & BUILDINGS CAPITAL GROWTH FUND, L.P., LAND & BUILDINGS INVESTMENT
MANAGEMENT, LLC AND JONATHAN LITT (COLLECTIVELY, "LAND & BUILDINGS") AND
MARC BROMLEY, MICHAEL DEMARCO, CHARLES ELSON, DANA HAMILTON, GREGORY
HUGHES AND SCOT SELLERS (TOGETHER WITH LAND & BUILDINGS, THE
"PARTICIPANTS") INTEND TO FILE WITH THE SECURITIES AND EXCHANGE
COMMISSION (THE "SEC") A DEFINITIVE PROXY STATEMENT AND ACCOMPANYING
FORM OF PROXY CARD TO BE USED IN CONNECTION WITH THE PARTICIPANTS'
SOLICITATION OF PROXIES FROM THE STOCKHOLDERS OF ASSOCIATED ESTATES
REALTY CORPORATION (THE "COMPANY") FOR USE AT THE COMPANY'S 2015 ANNUAL
MEETING OF STOCKHOLDERS (THE "PROXY SOLICITATION"). ALL STOCKHOLDERS OF
THE COMPANY ARE ADVISED TO READ THE DEFINITIVE PROXY STATEMENT AND OTHER
DOCUMENTS RELATED TO THE PROXY SOLICITATION, WHEN THEY BECOME AVAILABLE,
BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION, INCLUDING ADDITIONAL
INFORMATION RELATED TO THE PARTICIPANTS. WHEN COMPLETED, THE DEFINITIVE
PROXY STATEMENT AND AN ACCOMPANYING PROXY CARD WILL BE FURNISHED TO SOME
OR ALL OF THE COMPANY'S STOCKHOLDERS AND WILL BE, ALONG WITH OTHER
RELEVANT DOCUMENTS, AVAILABLE AT NO CHARGE ON THE SEC'S WEBSITE AT HTTP://WWW.SEC.GOV/.
IN ADDITION, INNISFREE M&A INCORPORATED, LAND & BUILDING'S PROXY
SOLICITOR, WILL PROVIDE COPIES OF THE DEFINITIVE PROXY STATEMENT AND
ACCOMPANYING PROXY CARD, WHEN AVAILABLE, WITHOUT CHARGE UPON REQUEST.
INFORMATION ABOUT THE PARTICIPANTS AND A DESCRIPTION OF THEIR DIRECT OR
INDIRECT INTERESTS BY SECURITY HOLDINGS WILL BE CONTAINED IN EXHIBIT 2
TO THE SCHEDULE 14A TO BE FILED BY LAND & BUILDINGS WITH THE SEC ON
NOVEMBER 17, 2014. THIS DOCUMENT CAN BE OBTAINED FREE OF CHARGE FROM THE
SOURCES INDICATED ABOVE.
Cautionary Statement Regarding Forward-Looking Statements
This communication contains “forward-looking statements” that involve
numerous risks and uncertainties. The statements contained in this
communication that are not purely historical are forward-looking
statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. All forward-looking statements included in this
document are based on information available to Land and Buildings on the
date hereof. In some cases, you can identify forward-looking statements
by terminology such as “may,” “will,” “seek,” “should,” "could,"
“expect,” “anticipate,” “project,” “estimate,” “intend,” “continue” or
“believe” or the negatives thereof or other variations thereon or
comparable terminology. Such statements are not guarantees of future
performance or activities. Due to various risks, uncertainties and
assumptions, actual events or results or actual performance may differ
materially from those reflected or contemplated in such forward-looking
statements. The opinions of Land and Buildings are for general
informational purposes only and do not have regard to the specific
investment objective, financial situation, suitability or particular
need of any specific person, and should not be taken as advice on the
merits of any investment decision. This material does not recommend the
purchase or sale of any security. Land and Buildings reserves the right
to change any of its opinions expressed herein at any time as it deems
appropriate. Land and Buildings disclaims any obligation to update the
information contained herein. Land and Buildings and/or one or more of
the investment funds it manages may purchase additional Associated
Estates shares or sell all or a portion of their shares or trade in
securities relating to such shares.
1
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Defined as the share price of $14.65 on November 14th, 2013, the
last closing price prior to Kohlberg Kravis Roberts & Co’s (“KKR”)
initial stake disclosure
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2
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Year-end 2015 net asset value using a 5.9% applied economic cap rate
and assuming 4% 2015 net operating income growth and 2015 cash
generation of $70 million prior to dividend payments
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3
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Trailing 10 years defined as October 8, 2004 – October 3, 2014,
trailing 5 years defined as October 9, 2009 – October 3, 2014, and
trailing 3 years defined as October 3, 2011 – October 3, 2014; share
prices relative to historical net asset values calculated by Land
and Buildings using data provided by Green Street Advisors; Green
Street Advisors has been an industry leader in real estate and REIT
research for over 25 years and Greenwich Associates rated Green
Street Advisors #1 in five categories including first place in Best
Industry Knowledge and Best Original Research for the last six years
in a row
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4
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Peer group represents the proxy peer group for the 2014 annual
meeting of shareholders excluding two companies that are no longer
separate publically traded companies: Apartment Investment and
Management Company (NYSE: AIV), Avalon Bay Communities, Inc. (NYSE:
AVB), Camden Property Trust (NYSE: CPT), Equity Residential (NYSE:
EQR), Essex Property Trust, Inc. (NYSE: ESS), Home Properties, Inc.
(NYSE: HME), Mid-America Apartment Communities, Inc. (NYSE: MAA),
Post Properties, Inc. (NYSE: PPS), and UDR, Inc. (NYSE UDR); the
company’s proxy peers traded at a 3.4% discount, 3.1% premium, 3.4%
discount over the trailing three, five, and ten year periods; the
trailing 10 year period excludes HME and MAA as data was not readily
available; share prices relative to historical net asset values
calculated by Land and Buildings using data provided by Green Street
Advisors
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5
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Bloomberg; Trailing 20 years defined as October 31, 1994 – October
31, 2014
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6
|
|
Company reports; 6 year time period defined as full year 2009
through full year 2014, using the midpoint of 2014 FFO guidance as
of third quarter of 2014
|
|
7
|
|
Axiometrics
|
|
8
|
|
AEC 2013 Definitive Proxy Statement: “The Executive Committee, which
consists of Messrs. Adams, Friedman (Chairman) and Milstein,
possesses the power of the Board of Directors in the management of
the business and affairs of the Company (other than filling
vacancies on the Board of Directors or any of the Board of
Directors’ committees) during intervals between meetings of the
Board of Directors.”
|
|
9
|
|
Bloomberg and Company reports
|
|
10
|
|
Bloomberg and Company reports; Data based on 2013 and 2002 full-year
results respectively
|
|
11
|
|
Bloomberg; Data based on 2013 results and compensation; Similarly
sized REITs defined as those US REITs between $1.5 to $2.5 billion
in enterprise value as of December 31, 2013
|
|
12
|
|
Time period defined as full year 2008 through full year 2014, using
the midpoint of 2014 FFO guidance as of third quarter of 2014 for
AEC and proxy peers
|
|
Copyright Business Wire 2014