American Campus Communities Inc. (ACC) — the last remaining publicly traded student housing REIT — on Wednesday, Jan. 27, settled with Jonathan Litt’s Land & Buildings Investment Management LLC in a deal that ousted the student housing REIT’s chairman and installed three new apparent company-picked directors on a soon-to-be 10-person board.
The student housing REIT agreed to add Jones Lang LaSalle Inc. (JLL) vice chairman Herman Bulls, Prologis Inc. (PLD) managing director for strategic capital Alison Hill and GSI Capital Advisors CEO Craig Leupold to its board. In addition, two directors — board chairman Edward Lowenthal and director Carla Sublett — are moving off the board.
According to relationship mapping service BoardEx, a sister company to The Deal, Lowenthal and Sublett have held director positions for 16 and 1.5 years, respectively. Incumbent director Cydney Donnell, who has been a director at the REIT for 16 years, will take over as board chair. In a statement, Litt said he was “particularly excited” about the installment of Donnell as chair because she “served as a mentor” to him when he entered the real estate business 30 years ago.
In addition, the three other new directors appear to be company choices. In a statement, Lowenthal noted that “we have identified” new directors, suggesting that the nominees were incumbent picks. It is unlikely, however, that Litt would sign a cooperation agreement with the REIT had he not supported them.
Litt may have privately nominated director candidates before reaching the settlement. Deal Point Data LLC calculates the deadline for director nominations to be Dec. 16 for the 2021 annual meeting, expected in April.
American Campus’ shares were battered by the Covid-19 pandemic in March and April, before recovering somewhat over the subsequent months. Its shares are down 7.49% over the past 12 months, though they are also up 6% over the past three years.
It is possible that Litt is seeking to have American Campus consider a sale. Education Realty Trust Inc., another student housing REIT, sold itself in 2018 to a Greystar Real Estate Partners unit for $41.50 a share. At the time, Education Realty owned or operated 79 communities in 25 states for 50 universities, with about 42,300 beds.
As of Sept. 30, American Campus owned 166 student housing properties with 111,900 beds.
Alexander Goldfarb, analyst at Piper Sandler Cos., said it was possible, but unlikely in the near term that American Campus would be acquired by private equity. “Right now, with the uncertainty with Covid, they [PE] won’t want to buy it,” Goldfarb said. “These PE firms usually want to map out performance over a number of years.”
He added that it is also unlikely that another REIT would be interested in buying American Campus. “Running a student housing REIT is very different than operating an apartment REIT or other type of REIT,” Goldfarb said.
Overall, Goldfarb said that American Campus has recovered substantially as student housing has proven pretty resilient to Covid. “Freshmen came in at 80% of occupancy in dorms [for the fall of 2020] , versus a normal 95% to 96% pre-Covid, but upperclassmen enrollment is pretty much in line with previous trends,” he said.
He noted that big pension funds, foreign sovereign wealth funds and PE have a strong appetite to own U.S. student housing assets, which continues to push dorm prices higher. The vast majority of U.S. dorms are privately owned.
“There are not many operators who have the skillset to operate student housing and you have more capital than options to partner with,” Goldfarb noted. “That trend of high demand continues to push student housing assets higher. The private markets value dorms a lot higher than where the public markets values American Campus.”
Finally, Goldfarb noted that American Campus has done a good job of building dorms for the masses — the REIT’s average rent per bed is $700 a month. “The problem that some developers got into was they built high-end dorms, which has a very limited customer base,” Goldfarb said. “American Campus builds dorms that a wide variety of students will use.”
BofA Securities’ Jeff Horowitz, Amy Lissauer and Kevin Daniels provided financial advice to American Campus. Dentons US LLP partner Toni Weinstein provided legal advice to the REIT.