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Enterprise: Apartment Expenditure and Administration Co. (AIV)

Activist: Land & Properties

  • Percentage Ownership:  1.39%
  • Average Price tag: $34.50
  • Activist Commentary: Land & Buildings is a real estate targeted lengthy-small hedge fund that will try to engage with management on a welcoming foundation when they see deep benefit. They commit in real estate in the community marketplaces and find corporate engagements. Their positions are usually under the threshold, and they are geared up to nominate administrators and have obtained board seats at Brookdale Senior Dwelling, Felcor Lodging Trust, Everyday living Storage, Macerich, Mack-Cali and Taubman Facilities.

What’s Taking place:

Behind the Scenes

Land & Buildings’ preliminary overture was made in response to the company’s announcement to independent these two enterprise traces into two independent publicly traded businesses. At about $33 for each share, the firm trades effectively below its NAV of somewhere around $58 per share and the board believes this spin-off is a way to close that gap. Even so, Land & Properties disagrees. Obviously its financial debt amount has something to do with it as does the complexity of its belongings and corporations. But immediately after this kind of a prolonged time period of underperformance, a single has to glimpse at administration as a possible dilemma.

Terry Considine has been the company’s chairman and CEO given that its IPO in 1994 and considering that that time the organization has underperformed its Proxy Condominium Peer Common by  a adverse 914%. Furthermore, the business has traded at a significant lower price to its individual NAV estimate as nicely as offer-facet estimates of NAV over a trailing 5 year period, and the enterprise has returned destructive 35.21%, adverse 25.99% and negative 8.79% in excess of the past 1, 3 and 5 yr periods, when the S&P 500 has returned 10.41%, 32.03% and 70.05%, respectively. Splitting into two firms will do very little to practically nothing to clear up these challenges as  Considine is envisioned to be chairman of both organizations, which are predicted to continue to do company with every other. In addition, the transaction will outcome in a material tax occasion for the business likely to exceed 10% of its full sector cap.

Land & Structures believes many shareholders concur with them and is calling for the board to set the spin-off to a shareholder vote, which the business has no obligation to do and probably will not do. In that case, Land & Buildings’ recourse is to get the support of a full of 25% of shares to contact a exclusive conference of shareholders to set the transaction to a vote. On the other hand, the stark fact of the problem is that if the AIV Board is eager to eschew good company governance and hold off a unique meeting, it can carry out the spin-off in advance of any shareholder vote is consummated. On the other hand, they must search to Darden Restaurants (DRI) as a cautionary tale. The Darden board ignored the crystal clear will of stockholders when divesting the Red Lobster business enterprise ensuing in the imminent substitution of the total board and CEO.

If the AIV board executes the spin-off without having a shareholder vote or in the facial area of a negative shareholder vote, and the NAV gap is not shut from the transaction, Land & Structures will have even additional ammunition for its activist marketing campaign and a lot more evidence that its theories are proper and will most likely press ahead with an activist marketing campaign at the newly fashioned AIR business. If Land & Properties is capable to get the enterprise to pause and hear to them or if they in the long run start an activist marketing campaign at AIR, they would possible be pushing to reconstitute the board, alter management, de-lever and cut down operational complexity. If that does not near the valuation gap, they would force for a sale of the business, and it is attention-grabbing to note that Blackstone is now a shareholder and could be a prospective acquirer if it arrives to that. 

Ken Squire is the founder and president of 13D Keep an eye on, an institutional research services on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.