Associated Estates – The Activists Got What They Wanted

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Associated Estates Realty Corporation (NYSE: AEC), a multifamily apartment REIT, has been the best performing equity REIT stock since April 1, 2015. The shares have increased in value by 17.6% over the past week and the expectation is they will remain at these levels through the end of the month.

An activist hedge fund, Land and Buildings, has been pressuring Associated Estates since November 2014 to improve share performance. At that time, Land and Buildings harshly criticized Associated Estates management for the following issues:

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  • Since 1998, the share price has never surpassed the 1993 IPO price of $20 per share.
  • From 2008 to 2014, Associated Estates increased the number of shares from 16 million to 58 million resulting in share value dilution.
  • FFO per share has never risen to levels reached prior to the Great Recession.
  • Using a capitalization rate of 5.9 percent, Associated Estates share price was trading significantly below its NAV.
  • Failure to comply with standard rules of corporate governance, the company allegedly engaged in nepotistic practices associated with the Chairman and CEO’s family.

As a result of this pressure, Associated Estates closed a cash deal to sell all outstanding shares at the premium price of $28.75 per share to Brookfield Asset Management. Associated Estate’s share price spiked to near the purchase price when the deal was announced.

This deal is expected to end Land and Buildings push to nominate board members at the 2015 Annual Meeting of Shareholders to be held this spring. Some days prior to announcing the deal with Brookfield Asset Management, Associated Estates released a formal letter to shareholders detailing the shortcomings of the Land and Buildings board nominees.

Land and Building’s issues were satisfied once the deal with Brookfield Asset Management was completed. Indeed, the purchase price nearly met their target stated last November netting them a tidy 42% profit, at least.


Written by Heli Brecailo

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.​