Land and Buildings Sends Letter to the Board of Associated Estates Realty Corporation

  Land and Buildings Sends Letter to the Board of Associated Estates Realty

         Encourages Sale of the Company to Maximize Shareholder Value

       Seeks Board or Management Refresh to Improve Strategic Direction

Business Wire

NEW YORK -- June 3, 2014

Land and Buildings today sent a letter to the Board of Directors of Associated
Estates Realty Corporation (NYSE: AEC).

The full text of the letter is as follows:

June 3, 2014

Jeffrey I. Friedman
Chairman of the Board
Associated Estates Realty Corporation
1 AEC Parkway
Richmond Heights, Ohio 44143-1550

Dear Chairman Friedman:

Land and Buildings is a long/short investment firm founded in 2008 that
invests in REITs and real estate related companies ("Land and Buildings") and
certain of our affiliated funds and accounts are shareholders of Associated
Estates Realty (NYSE: AEC). As a concerned and involved shareholder, we
believe AEC’s high quality, high growth apartment portfolio is not best suited
for the public markets in its current form and that shareholder value can best
be maximized through the sale of the company. As part of considering a sale, a
full review of remaining strategic alternatives should take place, including
considering a board or management refresh. We would like to meet with you as
soon as possible to discuss these alternatives and we are disappointed that
you have rebuffed our repeated attempts to engage with you on this matter.

About Land and Buildings

The Land and Buildings team has a deep history as global real estate investors
and analysts in both public real estate securities and direct property. For 13
years before becoming the Founder and CIO of Land and Buildings, I was a top
ranked sell-side property equity analyst prior to which I was a public/private
real estate investor. In such capacities I have been intimately involved with
managements in most of the public REITs since 1992, and you and I have of
course known each other since the early 1990s, during your over 20 year tenure
as Chairman and CEO of the company. I have closely followed Associated Estates
throughout that time.

As you may know, Land and Buildings was intimately involved with the
management and Board of BRE Properties as the company explored all strategies
to maximize shareholder value, and following these efforts , BRE was acquired
by Essex Property Trust (NYSE: ESS) and shareholders saw their BRE shares
trade to NAV. I am also currently on the Board of Mack-Cali (NYSE: CLI), an
owner and operator of suburban office and multifamily properties across New
Jersey and the surrounding areas in the Northeast, working constructively with
management and the Board to close the discount to NAV.

AEC: Untapped potential value

AEC has consistently traded at a steep discount to its aggregate net asset
value. Land and Buildings estimates, analyzing raw data provided by Green
Street Advisors, an industry leader in real estate and REIT research, that AEC
has traded at a greater than 20% average discount to NAV since 2000. This
large and persistent discount likely has no easy public markets cure for a
number of reasons, including the following:

1.The small size of the company creates financial inefficiencies as the
    disproportionately high general & administrative costs reduce the
    potential cash flow yield. AEC’s G&A as a percent of revenue is 10% vs.
    the public apartment peer average of 4%^1 .
2.The company's Midwest market focus, with large concentrations in Detroit,
    Cleveland, and Columbus, is not well followed or understood by public
    investors. As the public apartment REITs become increasingly urban and
    coastal, we expect this problem to be exacerbated.
3.Green Street estimates that AEC is last amongst its peers in management
    value creation, primarily a measure of capital allocation acumen, with
    shareholders having been better off by 21% over the past 7 years^2 had
    management undertaken no capital allocation decisions.
4.The company’s development pipeline is nearly 20% of total assets and is
    outside of AEC’s largest markets. We believe AEC’s outsized development
    exposure is hurting valuation given the company’s inferior cost of capital
    and lack of a successful track record of developing in the highest barrier
    to entry apartment markets.

Today’s discount to NAV, which we believe is well in excess of the 20%
average, in our view would be materially larger if not for the perception of a
potential take-out. On November 18th, 2013, Kohlberg Kravis Roberts & Co (KKR)
disclosed a 4% stake in AEC, causing the stock to rise 10.4% that day. We
believe that failing to follow through with action to immediately address the
continued discounted valuation could cause the stock to fall as the
probability of a go-private transaction diminishes. If the stock declines,
thereby increasing the company’s cost of capital, management’s ability to
drive shareholder returns would be further inhibited.

Wide open capital markets, historically low interest rates, and expectations
for continued strong apartment net operating income growth are creating a
robust, liquid private market with institutional appetite for apartment
assets. This environment is both conducive to an outright sale of the company
as well as improved capital allocation through asset sales and buying back
stock. Were there to be a process to explore interest in a potential sale, we
have no doubt that there would be multiple bidders with an interest in AEC and
its assets, and Land and Buildings and certain related parties would be
prepared to participate as well. Recent successful AEC apartment dispositions
highlight the strong pricing and depth of the private market as well as the
company’s discount. AEC has sold three apartment assets year-to-date for an
average “market” cap rate^3 of 5.4%, well below the high 7s implied cap rate
the company trades at in the public markets.

In addition to considering a sale of the company to maximize shareholder
value, a board or management refresh should be undertaken. New perspectives
could lead to an improved strategic direction as well as greater market
acceptance. The average tenure of the current board of directors is over 14

It is very disappointing that, following our repeated attempts to contact you
to have a dialogue about how the company can maximize value for its
shareholder, you have refused to agree to a phone call or meeting of any kind
to discuss these issues. As a result, we have been forced to resort to this
public letter in order to insist that you meet with us in person or by phone
immediately to discuss the available alternatives to maximize value for AEC


Jonathan Litt

Founder & CIO
Land and Buildings

Cautionary Statement Regarding Forward-Looking Statements

This communication contains “forward-looking statements” that involve numerous
risks and uncertainties. The statements contained in this communication that
are not purely historical are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All forward-looking statements
included in this document are based on information available to Land and
Buildings on the date hereof. In some cases, you can identify forward-looking
statements by terminology such as “may,” “will,” “seek,” “should,” "could,"
“expect,” “anticipate,” “project,” “estimate,” “intend,” “continue” or
“believe” or the negatives thereof or other variations thereon or comparable
terminology. Such statements are not guarantees of future performance or
activities. Due to various risks, uncertainties and assumptions, actual events
or results or actual performance may differ materially from those reflected or
contemplated in such forward-looking statements. The opinions of Land and
Buildings are for general informational purposes only and do not have regard
to the specific investment objective, financial situation, suitability or
particular need of any specific person, and should not be taken as advice on
the merits of any investment decision. This material does not recommend the
purchase or sale of any security. Land and Buildings reserves the right to
change any of its opinions expressed herein at any time as it deems
appropriate. Land and Buildings disclaims any obligation to update the
information contained herein. Land and Buildings and/or one or more of the
investment funds it manages may purchase additional Associated Estates Realty
shares or sell all or a portion of their shares or trade in securities
relating to such shares.


Land and Buildings is a registered investment manager specializing in publicly
traded real estate and real estate related securities. Land and Buildings
seeks to deliver attractive risk adjusted returns by opportunistically
investing in securities of global real estate and real estate related
companies, leveraging its investment professionals' deep experience, research
expertise and industry relationships.

^1 Peer group represents the proxy peer group for the 2014 annual meeting of
shareholders excluding two companies that are no longer separate publically
traded companies: Apartment Investment and Management Company (NYSE: AIV),
Avalon Bay Communities, Inc. (NYSE: AVB), Camden Property Trust (NYSE: CPT),
Equity Residential (NYSE: EQR), Essex Property Trust, Inc. (NYSE: ESS), Home
Properties, Inc. (NYSE: HME), Mid-America Apartment Communities, Inc. (NYSE:
MAA), Post Properties, Inc. (NYSE: PPS), and UDR, Inc. (NYSE UDR). Data is
from Bloomberg, based on trailing 12 month consolidated general and
administrative expenses and revenues.

^2 Green Street Advisors defines Management Value Added as the difference
between NAV per share growth and the leveraged growth in same-store portfolio
value over any time period. MVA measures value added or subtracted via balance
sheet management, capital-allocation or other factors not related to the
performance of the real estate portfolio. The measurement period is June 2006
through June 2013.

^3 AEC defines “market” cap rate as trailing 12 months net operating income,
assuming a 3% management fee and adjusted for marketing to market real estate
taxes divided by the gross purchase price of the property.


For Media Inquiries:
Sloane & Company
Elliot Sloane, 212-446-1860
Alexandra Meredith, 212-446-1887
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