Benzinga | Dec 16, 2021 07:46AM EST

American Campus Communities Issues Shareholder Letter

American Campus Communities, Inc. (NYSE:ACC) ("ACC" or the "Company") today issued an open letter to shareholders highlighting the Company's successful portfolio management, track record of value creation, market outperformance and continuous Board refreshment, including:

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20211216005343/en/

Risk Adjusted NOI Growth over Full Real Estate Cycle (Graphic: Business Wire)

* ACC's shares are trading near all-time highs, reflecting its consistent operating performance that has resulted in one of the highest risk-adjusted net operating income (NOI) growth profiles over the full real estate cycle, as compared to other publicly traded REIT sectors1;

* Since the start of the pandemic, ACC has achieved a total shareholder return (TSR) of 57%, exceeding the 45% TSR generated by the RMS REIT total return index2; and

* For the third quarter of 2021, total property NOI returned to pre-pandemic levels a full year earlier than anticipated, with 95.8% opening fall occupancy and 3.8% average rental rate growth over the prior year for the 2022 same store portfolio, above the high end of the Company's prior guidance. Recent operating performance clearly demonstrates ACC's resiliency following the pandemic.

Against the backdrop of ACC's positive momentum and exceptional performance, together with the Company's continued engagement with Land & Buildings Investment Management ("Land & Buildings"), ACC is disappointed by Land & Buildings' recent actions. Land & Buildings' Founder and CIO, Jonathan Litt, privately requested Board representation for himself in November 2021. In the midst of continued discussions with our Board, Land & Buildings has chosen to launch a distracting and self-serving public campaign, rather than pursue a path of constructive engagement. In its letter to shareholders, the Company notes:

* Over the past 14 months, ACC has made every attempt to maintain an ongoing and constructive dialogue with Land & Buildings, as the Company does with all of its shareholders, including entering into a settlement agreement in January 2021.

* With the support of Land & Buildings, earlier this year the Company appointed three new independent directors, elected a new Board Chair and formed a Capital Allocation Committee. Ongoing refreshment has resulted in a 40% diverse Board with an average independent director tenure of only 6.6 years. The Board's Capital Allocation Committee consists of four independent directors, two of whom were appointed to the Board pursuant to the January 2021 agreement with Land & Buildings, including the Chair, Craig Leupold. Since the January 2021 settlement agreement, ACC's refreshed Board has overseen strong TSR of 39%3.

* Land & Buildings has been misleading regarding its ongoing effort to secure a seat on the ACC Board for Mr. Litt4.

The full text of the Company's letter follows:

Dear American Campus Communities shareholders,

Our Board of Directors and management team are committed to creating value for you, our shareholders.

ACC has been a pioneer in the student housing industry since its founding in 1993. We are now the largest developer, owner and manager of high-quality student housing communities in the United States. With an enterprise value of approximately $10.6 billion5, the Company's 166 owned properties are in 71 markets. With our shares trading near all-time highs, our performance and shareholder value creation have been exceptional:

* Since our IPO in 2004, ACC has produced a total return of 565% compared to the RMS REIT total return of 379%6.

* Since completing our strategic portfolio refinement in 2018, ACC has outperformed the RMS REIT total return index by approximately 880 basis points7.

* Since COVID-19 was declared a global pandemic, ACC has outperformed the RMS REIT total return index by approximately 1,130 basis points8.

ACC's refreshed Board and management team have engaged extensively with our investors and taken meaningful actions to deliver significant earnings per share growth and shareholder value creation. We made strategic decisions leading up to the pandemic that began to produce results as demonstrated by our FFOM per share growth in 2019. While the progress was temporarily disrupted by the pandemic, ACC has emerged as a stronger company and our efforts are yielding tangible results. We are excited about the Company's runway for strong earnings and net asset value growth, which we expect will further drive substantial shareholder returns.

Achieving Strong Financial Results and Building for Long-Term Success

ACC has successfully enhanced its portfolio and diversified its sources of capital to drive significant earnings growth and shareholder value creation, including by:

* Strategically refining the assets in our portfolio with a focus on owning properties within walking distance to major Power 5 conference and Carnegie R1 universities that we believe are best positioned to deliver resilient performance over the long-term;

* Pursuing accretive investment opportunities in high-yielding developments;

* Funding any near-term capital needs through strategic capital recycling while maintaining consistent earnings growth for shareholders; and

* Minimizing the effect of the pandemic on our shareholders and generating a runway for strong future growth. As a result, ACC's earnings trajectory is among the highest of all sectors in the real estate industry according to current analyst estimates.

Our results throughout 2021 and momentum leading into 2022 demonstrate that our best-in-class property operations team is capitalizing on historic industry tailwinds:

* Returned total property net operating income (NOI) to pre-pandemic levels a full year earlier than anticipated, demonstrating ACC's resiliency following the COVID-19 pandemic;

* Achieved 95.8% opening fall occupancy and 3.8% average rental rate growth over the prior year for the 2022 same store portfolio, above the high end of our prior guidance;

* Delivered phase 5 of the Flamingo Crossings Village project on time and on budget, despite the national labor shortage and supply chain constraints, and welcomed over 4,500 residents within the first five months since the Disney College Program recommenced; and

* Awarded two new third-party development projects and commenced a third at Princeton University.

ACC's consistent operating performance results in one of the highest risk-adjusted NOI growth profiles over the full real estate cycle, as measured starting from The Great Recession in 2008 and ending in 2019 before the impacts of the COVID-19 global pandemic9.

ACC is poised to benefit from its prior long-term strategic portfolio refinement, investments in our next-gen operating platform and the positive fundamentals of the student housing industry. ACC's university markets are now experiencing record setting enrollment levels, including first year student enrollment growth at the highest levels in over 30 years, combined with new supply at the lowest levels in over a decade and significant activity in our on-campus public-private partnership business.

Recent Interactions with Land & Buildings

The Board and management team of ACC have sought to maintain a constructive dialogue with Land & Buildings since it contacted the company and became a shareholder last year. Land & Buildings first approached ACC in October of 2020 when the Company was battling the negative effects of the pandemic on higher education, the student housing industry and the Company's business.

With Land & Buildings' support in January 2021, we continued to refresh our Board and enhance our governance by identifying and appointing three new independent members, appointing a new Board Chair -- Cydney Donnell, former Principal and Managing Director of European Investors/EII Realty Securities -- and forming a Capital Allocation Committee. The Board's new Capital Allocation Committee consists of four independent directors, two of whom were appointed to the Board pursuant to the January 2021 agreement with Land & Buildings, including Craig Leupold, former CEO of Green Street Advisors -- a leading independent research and advisory firm for the real estate industry known for its analysis regarding corporate governance and capital allocation -- who serves as Committee Chair. Notably, both Ms. Donnell and Mr. Leupold bring to the ACC Board significant investment experience and shareholder perspectives from their prior roles, contrary to Land & Buildings' assertion that investor representation is needed.

In connection with our ongoing dialogue and correspondence, on November 1, 2021, ACC received a letter from Founder and Chief Investment Officer Jonathan Litt noting his intent to nominate himself to the ACC Board and work with us privately and constructively. Our Board's Nominating and Corporate Governance Committee subsequently interviewed Mr. Litt as part of its regular process to evaluate candidates. Following the interview on November 18, Mr. Litt indicated he would provide the Committee follow-up information regarding topics he discussed, but to date, has yet to do so.

It is disappointing that Land & Buildings chose to publicly disclose its intent to nominate a candidate while still in its process with the Board. It is also unfortunate that Land & Buildings decided against continuing to work constructively with ACC as it had previously.

Well Positioned to Deliver Enhanced Value into the Future

Our Board and management have built a best-in-class, sector-leading operating platform that has delivered one of the most resilient NOI growth profiles amongst all REITs since the Company's IPO over 17 years ago. ACC has successfully navigated through the catastrophic event of the COVID-19 global pandemic while both trying to mitigate the impact to shareholder value and being sensitive to the needs of residents, employees and university partners. We are highly optimistic that the fundamentals of the student housing operating environment provide investors with a unique opportunity for recession-resilient, robust organic growth, meaningful earnings growth, and substantial net asset value creation in the years ahead.

We look forward to our continuing dialogue with ACC shareholders and will keep you apprised of our progress.

Sincerely,

Cydney C. Donnell

Chair of the Board