By Svea Herbst-Bayliss
BOSTON (Reuters) -Activist investment firm Land & Buildings Investment Management is seeking a seat on the board of American Campus Communities (NYSE:ACC), according to an open letter to shareholders, and believes the company needs to sell assets aggressively and buy back stock.
Land & Buildings, which generally pushes for changes at real-estate companies, previously held discussions with the Austin, Texas-headquartered owner and operator of student housing about strategy and capital allocation. In January it reached an agreement for ACC to overhaul its board of directors.
But Jonathan Litt, Land & Building's founder and chief investment officer, feels the changes made earlier this year did not go far enough to correct persistent problems, the people said. ACC added three new directors, appointed a new chair and formed a capital allocation committee.
To push for changes more forcefully, it was imperative to add an investor, or stakeholder, to the company's board, Litt said in the letter. It was not clear from the letter whether Litt planned to nominate himself as a director candidate.
The company said it has engaged in a constructive dialogue with Land & Buildings and refreshed the board with the hedge fund's support.
"We have taken significant action to deliver superior performance, and today, ACC shares are trading near all-time highs," a spokesman said. "Based on these actions, the Company is poised to benefit from the positive fundamentals of the student housing industry, and we are confident in our prospects for continued earnings growth and value creation."
While ACC's stock price has gained 27% this year, it has underperformed its peers by 13% since the cooperation agreement was signed in January, Litt's letter said.
Land & Buildings owned a 1.03% stake in ACC at the end of the third quarter, according to regulatory filings. The company is valued at $7.6 billion.
Litt feels the board needs to show investors that it is moving more aggressively to bring ACC's stock price, which is currently trading at $55.02, toward "fair value" closer to $70 a share, the letter said.
More aggressive sales should be a first step and could be very lucrative at a time when more students are returning to study full time and prices for these types of properties are rising. Share buybacks, which the company has historically avoided, would also be helpful.
Additionally, the company should cut costs, with general and administrative expenses having more than doubled since 2013. The board should also review all strategic alternatives to help boost the share price, the letter said.
Although Litt is not pushing for an immediate sale of the company, he believes boards need always to look at all options to increase value, including a possible sale, the letter said.
Earlier this month, the hedge fund nominated two candidates, including Litt, for election at Lexington Realty (NYSE:LXP) Trust.
Industry analysts say the pace of investors returning to a company with which they recently reached a settlement or where another activist is already on the board is picking up.