Jonathan Litt

In November, Jonathan Litt’s Stamford, Conn.-based company Land and Buildings proposed a new board for Cleveland-based REIT Associated Estates Corp. (AEC) headlined by former Archstone CEO Scot Sellers.

Some time between that date and late December, representatives from AEC and Litt met. And, judging from the dueling press releases that came out December 29, that meeting didn’t go well. 

At the end of a release announcing governance changes, as well as the addition of former Equity Residential CEO Doug Crocker on its board, AEC also addressed Litt and Sellers, saying that “independent directors and management continue to seek to avoid the distraction and expense of a proxy contest with Jonathan Litt at Land and Buildings.” 

The REIT said that it had met with Litt and Sellers and agreed to add two of their board nominees, but Litt refused that offer.

“Land and Buildings' unwillingness to reach a settlement that would see two of its nominees join the board and participate in the business review demonstrates that Land and Buildings has no interest in working collaboratively with the board to advance the interests of all other shareholders,” said James Schoff, chairman of AEC’s nominating and corporate governance committee, in the release. “Instead, Land and Buildings appears to be predisposed to imposing its will on the company in seeking to take total control of the board of directors through threats or a proxy contest.”

In a response, Land and Buildings painted AEC as unwilling to compromise. Litt’s firm said it was “disappointed, but not surprised” that AEC “abandoned” discussions and said its board nominees, which also include former Archstone executive Dana Hamilton and former Gables Chairman and CEO Marcus E. Bromley, were “best in class and proven stewards of shareholder capital.”

“It is time for real change and we view today’s announcement as too little, too late,” Land and Buildings said. “The Land and Buildings nominees offer a clear path for Associated Estates to become a best in class apartment REIT. We reject Associated Estates claim that we have ‘no interest in working collaboratively with the board’ and hope to continue to collaborate with the board of Associated Estates to seek a friendly resolution to maximize shareholder value.” 

AEC’s Moves

AEC also announced a strategic review and governance changes December 29, but the big news was Mark L. Milstein, who spent 21 years on the board, stepping aside for Crocker. In his new role, Crocker will serve as chairman of the finance and planning committee of the Associated Estates board, which, in consultation with the company's financial adviser, will conduct a thorough review of the AEC's assets, operations, and business strategy. Crocker will also be included on the company's slate of directors to stand for election at the 2015 Annual Meeting of Shareholders.

“Doug's appointment demonstrates our commitment to a stronger, more independent and experienced board that is focused on advancing the interests of all shareholders,” Jeffrey I. Friedman, chairman and CEO, said in a statement. “On behalf of the entire board, I want to thank Mark Milstein for agreeing to step aside and make room for Doug Crocker to immediately join the board.”

Soon after the announcement, Land and Buildings put out a release questioning the addition of Crocker among other things. “Land and Buildings believes Associated Estates’ appointment of Doug Crocker to the board does not represent a sincere effort at change, but instead demonstrates an effort by management to further entrench themselves,” the company said. “Land and Buildings believes Associated Estates’ appointment of Doug Crocker to the board does not represent a sincere effort at change, but instead demonstrates an effort by management to further entrench themselves,” Land and Buildings said.

Then Land and Buildings compared Crocker with its own nominee, Sellers.

“Doug Crocker was on the board of Post Properties (PPS) for eight years, ending in 2012 when at 72 he aged out of eligibility to be included,” it said in the statement. “Despite shareholder demands to maximize shareholder value during his tenure, most notably in 2008 when a $44 to $47 per share bid for the company was put forth, the board of PPS chose to reject that offer. PPS shares did not trade back to that value until 2012. This was at a time when Scot Sellers sold Archstone for $22 billion at the peak of the market in 2007.”

In addition to the Crocker addition, AEC has engaged Citigroup Global Markets to help conduct a “thorough review of the company's business,” according to the release.  Crocker, and the other committee members, will oversee the review of the company's strategy, portfolio, and business.

“Our board is committed to maximizing shareholder value, and will undertake a thorough review of our opportunities to accomplish that objective,” Friedman said a statement. “While the board is not opposed to a potential sale of the company, we are opposed to selling the company for less than it's worth. Enlisting Doug Crocker, an accomplished executive with extensive industry experience, to lead our finance and planning committee and their efforts, and engaging Citi to provide additional analysis and advice, will ensure our review is both impartial and exhaustive.”

Not surprisingly, Land and Building wasn’t impressed. It insisted that, as part of this process, AEC should state what it believes the company is worth. Land and Buildings’ thinks its net asset value estimate is $29 per share.

“We believe the finance and planning committee, which Mr. Crocker will chair as well as engaging Citigroup for a ‘business review,’ falls well short of genuinely evaluating strategic alternatives to maximize value for shareholders,” it said in the Dec 29. release. 

If the press releases highlighted anything, it's that there doesn’t seem to be much agreement between Land and Buildings and AEC about the direction of the REIT. That means the battle for control of the company will play out this spring.