Activist Shareholder Group Eyes Campus Crest Leadership Shakeup

What happens when one famed student housing company struggles? Two other companies team up to take it over.
Andrew Stark,Campus Evolution Villages

Andrew Stark,Campus Evolution Villages

Clinton Group, Inc. and Campus Evolution Villages, L.L.C. are teaming up for a possible takeover of Campus Crest Communities, Inc., the Charlotte, N.C.-based student housing REIT that has been undergoing strategic repositioning since ousting its former CEO and CFO last fall.

CGI, a New York asset management firm and Campus Crest shareholder, in December notified the Board of Directors that it intended to nominate four people for the board as a way to “maximize value to shareholders” and position it for a sale. Joseph De Perio, CGI senior portfolio manager, said this week in a press release that the Campus Crest board has not engaged “with us in a constructive manner since our nomination notice, and most recently, when we apprised them of our current plan.”

CGI and CEV, a private owner and operator of 22 student housing assets with about 10,000 beds, has now proposed that CEV’s co-founders, CEO Andrew Stark and CIO Evan Denner, and their management team run Campus Crest.

“We are a great alternative for shareholders today and have the capabilities to address all of the company’s issues and problems – instituting a full executive team with our extensive hands-on student housing expertise, turning around the operations immediately, and restoring Campus Crest’s growth opportunity and pipeline with our owned and managed assets,” Stark said in the CGI release.

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Evan Denner, CEV

Denner added that CEV, which was founded in 2012, has “worked very hard to build a brand that focuses on both the student-resident experience as well as disciplined attention to driving value for all stakeholders.”

Craig Kucera, an analyst with Wunderlich Securities, called it a “very credible and thoughtful proposal from an activist shareholder.” Kucera, writing in an investors’ report Tuesday, said the CEV team was experienced and had success turning around troubled assets.

The proposal came the same day that Richard Kahlbaugh, non-executive chairman of the Campus Crest board, announced it was exploring a “broad range of strategic, operational and financial alternatives to further enhance shareholder value.” Kahlbaugh also stated a release that the board had appointed CIO Aaron Halfacre as president. In his new role, Halfacre will oversee day-to-day management of the strategic repositioning and help the board evaluate potential strategic alternatives.

Kahlbaugh cited Halfacre’s “leadership in the successful closing of the Copper Beech transaction and his overseeing of all day-to-day operations.”

In November, the board announced co-founder and CEO Ted Rollins and CFO Donnie Bobbitt had resigned. Rollins had earlier stated that the company was not going to acquire the Copper Beech portfolio in which Campus Crest owned a minority stake. When Halfacre joined the REIT in July, he renewed efforts to get the deal completed. Earlier this month, Campus Crest stated it had acquired the remaining interests in the 32 properties for approximately $60.3 million cash, $140.6 million in assumed debt and 12.4 million operating partnership units.

As part of its strategic repositioning, Campus Crest said it was getting out of the development business. The REIT, which has ownership interests in 86 student housing properties with more than 46,000 beds in North America, has sold six land parcels in Alabama, Arizona, California, Florida, Michigan and Washington to an unidentified “leading student housing developer” for an undisclosed amount.

“Copper Beech provides diversification and scale while the land sales unlocked value and enhanced liquidity,” Halfacre stated.

The company noted there was demand for the portfolio “from a wide spectrum of bidders with numerous offers received – including multiple portfolio offers.”

That could be part of the reason why the REIT has asked Moelis & Co., L.L.C., and Kilpatrick Townsend & Stockon L.L.P., the company’s financial and legal advisors, to assist with the analysis of potential alternatives.

“After receiving several unsolicited inquiries by highly-qualified institutions, the Board of Directors instructed Moelis and Kilpatrick to formally undertake the exploration of a variety of strategic alternatives proposed by inbound interested parties,” Kahlbaugh said in the release.

While stating the CGI/CEV proposal “provides the best path to sustainable shareholder value creation given the experience of CEV management in student housing to improve same-store operations and provide a future source of growth,” Kucera also wrote that no matter which direction the Campus Crest board decides to go in, “we believe shareholders will win.”