Shareholders of American Community Properties Trust (NYSE:APO) are eerily reminded of the stalled sale of Wilshire Enterprises (WOC). Chairman and CEO Michael Wilson proposed a going-private transaction in July, and it has dragged on for half a year without any visible progress.
“James Michael Wilson has an agreement in principle to engage Granite Partners, L.L.C. (”Granite”) as a consultant and financial advisor for the purpose of obtaining an Investor for the Potential Transaction. Granite recently began approaching potential Investors.” Wilson’s July 17, 2007 SEC filing
To be fair, the situation at ACPO looks slightly more favorable for shareholders: not only one activist like at WOC, but even two are pressuring the board to take action quickly. Leeward Capital disclosed a 5.4% stake in December and urged the board to restore the dividend at an increased level or buy back shares. Leeward claims that it has found investors willing to provide ACPT with capital for such a move.
Leeward Capital, not to be confused with an eponymous Canadian firm, is run by Eric von der Porten who spots value, or lack thereof, deep inside financial statements. He is primarily a value investor and has acted only a few times as an activist. The other activist is Robert Chapman of Chapman Capital. Chapman has a long and contentious relationship with ACPT going back to the 1990s, so he definitely can not be accused of short-termism. His February 2001 13D filing marks the first time the f-word was mentioned in an SEC filing (not his March 2007 Embarcadero filing as another blog claimed recently):
Upon being asked by Mr. Chapman for an explanation for Mr. Wilson’s non-responsiveness to a party overseeing the largest (9.5%) non-Wilson family block of the Issuer’s shares, Mr. Wilson responded in a fashion unique to his apparent management style by stating, “You’re a fucking pain in the ass and we don’t want to talk to you.” Mr. Wilson then disconnected from the telephone “conversation.”
Another, more significant difference to Wilshire is ACPT’s board decision to opt out quietly of the Maryland Control Share Acquisition Act last October. This is a state law that prevents holders of more than 10% of a company’s stock from acquiring control of the firm without the board’s consent. More precisely, a 10% shareholder loses voting rights on these shares. Opting out of this provision is generally shareholder-friendly, but somewhat pointless in ACPT’s case because the Wilson family controls the majority of the firm anyway. It may just be an attempt by the board to show that it's shareholder-friendly.
ACPO was spun off from Interstate General Company in 1998. Based on an appraisal that was part of the spinoff, Interstate valued the net asset value of ACPT between $21.25 and $21.55. Chapman quotes the appraisal in his repeated 13Ds since 2000 and estimates the liquidation value of ACPT at between $15 and 25 per share - based on that appraisal. Despite the recent correction in real estate prices, it is a safe bet that its real estate is still more valuable than back then.
ACPT has dropped quite a bit over the last few months over concerns about its development division. It was hit when it restructured its agreement with home builder Lennar Corporation (ticker: LEN) for 2007 and 2008 to reflect the deteriorating outlook for housing. 2009 and subsequent years are not affected by the changed terms. The land development activities may well spook many potential investors, but the bulk of the revenue comes from rental and commercial properties in Maryland and Puerto Rico. Therefore, we believe that a going-private transaction would be feasible for the Wilsons.
Figuring out exactly what the family’s economic incentives are is difficult because of numerous related party transactions, that make ACPT more valuable to them than any other buyer. Naturally, that is the case in most buyouts of minority shareholders. If the Wilson’s procrastinate, continue their related party transactions and occasionally restructure land development deals, they may eventually get the share price down a little more. But we don’t think that making shareholders disgruntled is a good idea when two activists are circling your firm.
Disclosure: Thomas Kirchner manages the Pennsylvania Avenue Event-Driven Fund [PAEDX], which holds shares of WOC and APO.