Land and Buildings 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 – are shareholders
of approximately 2.8% of the common shares of Associated Estates Realty
Corporation AEC ("AEC", "Associated Estates", or the "Company").
Today, Land and Buildings sent the following open letter to Associated
Estates' independent directors Douglas Crocker II and Jon A. Fosheim:
April 15, 2015
Dear Douglas and Jon:
We were pleased to see – in your public letter on April 13, 2015 – that you
are actively engaging with investors and listening to shareholders. We believe
that the voices of shareholders must be heard at Associated Estates and are
confident that your presence in the Boardroom will prove helpful in enhancing
shareholder value at the Company. Frankly, the type of highly-qualified
background and independent perspectives you each possess are exactly the kind
of influence that Associated Estates has been sorely lacking for far too long.
However, we believe that even with the likely election of John Gates, the
Associated Estates board will remain out-of-balance with five legacy
directors, which could negate potential contributions from the new minority
directors recently added to the Board.
We continue to believe that adding our three director candidates to the Board
of AEC would complement your presence and finally shift the balance of power
away from the entrenched, Cleveland-dominated incumbent regime that has
overseen a prolonged period of underperformance and poor corporate governance,
and towards the interests of all shareholders.
Once this re-balancing has been achieved, our nominees would be supportive of
separating the CEO and Chairman roles and would be in favor of naming Doug as
the Company's first-ever independent Chairman of the Board. With such a Board,
including six talented and truly independent directors, under Doug's
leadership, we believe that Associated Estates would be on the right path
towards unlocking shareholder value and achieving its full potential as a
great company.
Our director nominees would bring substantial relevant experience to the
Associated Estates Board and, in our view, would represent immediate upgrades
to the current incumbents we intend to replace. Below, we have delineated our
thinking with regard to each of our nominees versus the incumbents.
Scot Sellers vs. Michael Gibbons
Scot Sellers served as the Chief Executive Officer of Archstone-Smith, 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.
At Archstone, Scot helped pioneer a number of Class A apartment REIT best
practices, including the revenue management system AEC recently implemented
(LRO). Under his 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 Scot 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. The equity
market capitalization of the company increased during Scot's tenure from $767
million to $15.1 billion, while the Company also paid over $3.7 billion of
cash dividends to shareholders. Sellers oversaw the sale of Archstone for $22
billion near the peak of the market in 2007. Over the course of his career,
companies led by Sellers have developed, acquired and operated over $40
billion of apartment communities in over 50 different cities across the United
States.
Michael Gibbons is a Senior Managing Director and Principal of Brown, Gibbons,
Lang & Company, a Cleveland-based investment banking firm. His primary real
estate experience creates more conflicts than benefits and centers on his
involvement with his investment bank that has previously had AEC as a client
and in local multifamily development. He has been an AEC Board member since
2004. He also sits on the Board of several Cleveland- and Ohio-based
institutions, which further intertwines him with CEO and Chairman Jeff
Friedman and several other members of the AEC Board.
Why elect Scot Sellers vs. Michael Gibbons?
* We believe Scot Sellers is one of the most respected, seasoned, and
successful executives in the multifamily REIT space, and would bring all
of this to bear on the Associated Estates Board. Michael Gibbons'
experience as a principal at a Cleveland-based investment banking firm
that served as advisor to Associated Estates in its IPO process, as a
developer of multifamily assets in the Cleveland region and a long-tenured
AEC board member, are clear conflicts of interest and the benefit he would
represent for shareholders pales in comparison.
Charles Elson vs. James Schoff
Charles Elson is one of the foremost experts on corporate governance in the
United States. He serves as 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, and his fields of expertise include
corporations, securities regulation and corporate governance. He is also "Of
Counsel" to the law firm of Holland & Knight. He is presently a member of the
Board of Directors of HealthSouth Corporation and of Bob Evans Farms Inc.,
where he has helped initiate a comprehensive governance turnaround. Professor
Elson has written extensively on the subject of boards of directors. 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.
James Schoff is based in Cleveland and has been a Board member at Associated
Estates since 2006. He previously served as Chief Operating Officer (COO) and
Chief Investment Officer (CIO) of DDR Corp. DDR, a shopping center
REIT, and retired in 2010. While his real estate background likely qualified
Schoff to be nominated to the Associated Estates' Board, we believe that his
nomination was prompted by his decades-long relationships with Jeff Friedman
and Michael Gibbons at various entities incorporated and/or located in Ohio
that predated his nomination by over 20 years.
Why elect Charles Elson vs. James Schoff?
* Given AEC's woeful governance track record, Professor Elson's immediate
contribution to the Board would be to set the Company on the path to
restoring credibility and shareholder trust. His qualifications, in our
view, vastly outweigh those of James Schoff, who, in fact, is the Chairman
of the Nominating and Corporate Governance Committee that appears to us to
have largely neglected its duties until this past year, likely given his
coziness with Jeff Friedman and other current and past AEC Directors.
Jon Litt vs. Richard Schwarz
Jon 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 and
is a former top-ranked sell-side REIT analyst. He is the Founder and CIO of
Land and Buildings, an investment firm specializing in publicly traded real
estate and real estate related securities. Previously, 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 from 1995 to 2008, achieving the
prestigious Institutional Investor Magazine's #1 ranking for 8 of those years
and a top five ranking throughout the period. 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.
Richard Schwarz, like Michael Gibbons, James Schoff and CEO and Chairman Jeff
Friedman, is based in Cleveland. He has been a limited partner of Edgewater
Capital Partners, a private equity investment firm, and a member of its board
of operating advisors since July 2003. He has been an AEC Board member since
1994 and has overseen the Company's 20-plus year history of material
underperformance, including as the Board's current Lead Director. He also has
close ties with Friedman – in fact, he attended Ohio State University at the
same time as Friedman, overlapping for at least three years. Schwarz's private
equity firm also had a prior business relationship with Gibbons' investment
bank prior to Gibbons' appointment to the Associated Estates' Board.
Why elect Jon Litt vs. Richard Schwarz?
* Jon Litt would bring a fresh perspective – anchored in over 20 years of
experience in the REIT space – to the Associated Estates Board, in
contrast to Richard Schwarz, whose greater than 20-year Board membership
would perpetuate what we view as the intertwined web of cronyism that
currently characterizes the Board.
The Choice
In our view, shareholders face a clear choice: will they support the continued
entrenchment of what we see as a myopic, Cleveland-centric Board of Directors
with close ties to each other and a lack of true independence – characterized
especially by the presence of Michael Gibbons, James Schoff and Richard
Schwarz? Or, will they elect our nominees, including two proven experts in the
space and a leading corporate governance expert in the country?
We urge shareholders to elect our three director nominees, who have the right
skills and expertise to reverse Associated Estates' over 20 year history of
underperformance, and who will complement the presence of Douglas Crocker and
Jon Fosheim on the Board. We are convinced now is the time to tilt the scales
back towards the interests of shareholders.
All the best,
Jonathan Litt
Founder & CIO
Land and Buildings
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