Jonathan Litt, the hedge-fund manager who runs Land & Buildings Investment Management LLC, wants apartment-building manager Associated Estates Realty Corp. to consider selling itself to his fund.
Associated should explore a sale to Litt or a private-equity buyer because its shares are cheap while appetite for apartment assets is strong, Litt wrote in a letter to the company’s board today. Greenwich, Connecticut-based Land & Buildings took a 1 percent stake in Associated earlier this year, Litt said in an interview.
“I think a go-private is the the most logical way to go,” said Litt, who plans raise the money to acquire Richmond Heights, Ohio-based Associated from undisclosed investors. “We feel confident that we would be able to submit a competitive bid to buy the company.”
Rising property taxes and utilities costs are squeezing operating margins at real estate investment trusts that own apartments, putting pressure on them to merge and sell assets. Litt is pushing for the sale of Associated less than a year after he started a takeover attempt of BRE Properties Inc., a San Francisco-based apartment building landlord that was later sold to Essex Property Trust Inc.
Associated, which owns 53 properties in Ohio and nine other states, ending trading yesterday with a market value of about $1 billion.
A sale of Associated to a financial buyer makes the most sense because publicly traded real estate investment trusts only want to buy assets on the East and West Coasts, Litt said.
“The public guys don’t want to be in the Midwest,” he said. Litt’s letter notes that Associated surged after KKR & Co. disclosed a 4 percent stake in the company in November.
Financing for buyouts is readily available in the capital markets, and Associated is deeply undervalued, he said. Associated has traded at an average discount of more than 20 percent to the value of its assets since 2000, according to his firm’s research.
He also wants Associated to introduce new board members that could bring a “fresh” perspective to its strategy, he said.
“This board has been together a long time,” he said.
Mack-Cali Realty Corp. named Litt to its board in January, after Litt agreed to not engage in proxy solicitations.