· 3-1s/--11 14005639 act /gji1c section_____________________ rule iq-ifoib public availability...
TRANSCRIPT
3-1S/--11
14005639
Act /gji1C
Section_____________________
Rule iq-if OibPublic
Availability 3i7 ..fi.
Dear Ms Hanschnan
This is in regard to your letter dated March 132014 concerning the shareholder
proposal submitted by Westdale Construction Co Limited for inclusion in Associated
Estates proxy materials for its upcoming annual meeting of security holders Your letter
indicates that the proponent has withdrawn the proposal and that Associated Estates
therefore withdraws its January 72014 request for no-action letter from the Division
Because the matter is now moot we will have no fbrther comment
Copies of all of the correspondence related to this matter will be made available
on our website at httpJ/wwwsec.aov/dvisions/cornfin/cf-noaction/14a-shtinl For
your reference brief discussion of the Divisions informal procedures regarding
shareholder proposals is also available at the same website address
Sincerely
Erin Martin
Attorney-Advisor
cc Jeffley Sone
Jackson Walker [email protected]
DWIION OPirnowPNANCt
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C 20545
MAR 172014
Washington DC 20549Suzanne Hanselman
Baker Hostetler LLP
March 17 2014
Re Associated Estates Realty Corporation
BakerHostetler
BakerHostetler u..p
PNC Center
1900 East 9th Street Suite 3200
Cleveland OH 44114-3482
216.621.0200
13 2014216.696.0740
arc
Suzanne Hanselman
direct dial 216.861.7090
SHanselmanbakerlaw.com
Via Email shareholderproposalsec.gov
U.S Secunties and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 Street NE
Washington D.C 20549
Re Shareholder Proposal Submitted by Westdale Construction Co Umited
Ladies and Gentlemen
We previously submitted to the staff letter dated January 2014 requesting the
staffs concurrence that Associated Estates Realty Corporation the uCompanyul may
exclude the shareholder proposal referenced above from the proxy materials for the
Companys 2014 annual meeting of stockholders
On March 12 2014 the proponents counsel contacted the undersigned via an email
communication withdrawing the proposal copy of the email communication is
attached as Exhibit Because the proponent has withdrawn the proposal the
Company hereby withdraws its request for no-action letter relating to the proposal
copy of this letter also is being provided simultaneously to the proponent
If you have any questions or require additional information please call me at
216.861.7090
Sincerely
Suzanne Hanselman
Enclosure
cc Jeffrey Sone Jackson Walker LL.P isoneäiw.com
Atlanta Chicago Cincinnati Cleveland Columbus Costa Mesa Denver
Houston Los Angeles New York Orlando Philadelphia Seattle Washington DC
Exhibit
From Sone Jeff jsoneiw.comDate March 12 2014 at 50644 PM EDTTo Hanselman Suzanne [email protected] Hyndman Pete phyndmanäiw.com Homberger Willie
whombergerjw corn
Subject Re Following Up
Suzanne
apologize for the informality of emailing you but am in Korea at the moment
On behalf of our client Westdale Construction Co Limited we would like to
withdraw the shareholder proposal made for inclusion in the proxy materials for
Associated Estates upcoming Annual Meeting
Please let me know if you need anything further from me on this
Sent from my iPhone
Purpose of Email This email is not intended to create an attorney client
relationship where none previously exists This email is not intended to be an
opinion of counsel about tax or other law This email was not written is not
intended and should not be relied upon by any person to avoid penalties under
federal tax law
Confidentiality Notice The contents of this e-mail and any attachments are
intended solely for the addressee and may be PRIVILEGED ANDCONFIDENTIAL If you are neither the addressee nor receiving this
communication for the addressee pleasedelete this message and all attachments
and noti the sender of the transmission error
On Mar 2014 at 120 AM Hansehxian Suzanne
[email protected] wrote
Just following up on our discussion on Tuesday Do you have any additional
information Thanks Suzanne
Suzanne
Hanselmanhtti//www.bakerlaw.com/FindLawvers.asoxLookur By Emailsh
anselman BakerHostetlerhttp//www.bakerlaw.coml
PNC Center 11900 East 9th Street Suite 3200 Cleveland OH 44114-3482
216.861.7090 216.696.0740
BakerHostetler LIP
PNC Center
1900 East 9th Street Itte 3200
Clevetand OH 44114-3492
216.821.0200
216.696.0740
wwww.comSuzanne Hansekan
February 2014 dIrect dlak 216.861.7090
VIA E-MAiL
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
100 Sfreet NE
Washington DC 20549
Re Associated Estates Realty Corporation
Supplemental Correspondence Regarding Shareholder Proposal of
Westdale Construction Co Limited
Securities Exchange Act of 1934Rule 14a-8
Ladies and Gentlemen
This correspondence supplements our letter dated January 2014 the Request
Letter Informing you that our client Associated Estates Realty Corporation the
Company intends to omit from Its proxy statement and form of proxy for Its 2014
Annual Meeting of Shareholders collectively the 2014 Proxy Materials shareholder
proposal the Proposal and statement in support thereof the Supporting Statement
received from Westdale Construction Co Limited the Proponent We are submitting
this supplemental correspondence in order to address certain points raised in the
Proponents response to the Request Letter submitted by counsel to the Proponent on
January 30 2014 the Response Letter
Pursuant to Rule 14a-8j concurrently with our submission we are sending copy of
this supplemental correspondence to the Proponent
In the Request Letter we requested that the staff of the Division of Corporation Finance
the Staff concur In our view that the Proposal may properly be excluded from the
2014 Proxy Materials pursuant to
Rule 14a-8f because the Proponent failed to provide the requisite proof of
share ownership satisfying the eligibility requirements of Rule 14a-8b
Atlanta Chicago Cincinnati Cleveland Columbus Costa Mesa Denver
Houston Los Angeles New York Orlando Philadeiphia Seattle Washington DC
Page
Rule 14a-8i3 because the Proposal is impermissibly vague and indefinite so
as to be inherently misleading
Rule 14a-8i3 because the Supporting Statement is replete with false and
misleading statements
Rule 14a-8i7 because the Proposal deals with matters related to the
Companys ordinary business operations
Rule 14a-8i2 because implementing the Proposal would cause the Company
to violate Ohio law and
Rule 14a-8i6 because the Company lacks the power and authority to
implement the Proposal
We reiterate our request that the Staff concur in our view that the Proposal is properly
excludable on each of the foregoing bases and direct the Staff to our Request Letter for
our analysis supporting exclusion on each basis The purpose of this supplemental
correspondence is limited to responding to certain assertions raised in the Response
Letter
RESPONSE LETTER
We believe that throughout the Response Letter the Proponent attempts to recast the
Proposal and the Supporting Statement in manner that is at odds with their actual
language presumably in the hope of diverting attention away from the grounds that
support their proper exclusion under Rule 14a-8Q
Section II of the Response Letter Vague and Indefinite under Rule 14a-8i3
On page of the Response Letter the Proponent essentially rewrites the Proposal in
an attempt to eliminate Inconsistencies and ambiguities erroneously stating that the
Proposal provides for the following
the Board forms an independent committee of directors with the
mandate to pursue sale of the Company on terms that maximize
shareholder value and the appointed committee take steps to pursue
such sale including engaging reputable investment bank to actively
seek sale or merger merger in this context referring to sale by way of
merger
This reconstruction of the Proposal differs from the actual Proposal in significant ways
The Response Letter adds parenthetical explaining the meaning of mergerand links the engagement of the investment bank to the purposes of the
committee by including the phrase take steps to pursue saleElsewhere in the Response Letter the Proponent claims that the word mergers
in the Proposal clearly modifies the initial dause of the Proposal calling for
sale of the Company We disagree The Proposal refers to sale
merger with the use of the disjunctive recognizing that merger is something
different than sale This plain reading is consistent with the fact that as we
explained in our Request Letter merger could encompass sale of the
Company an acquisition by the Company or combination of the Company
602997891
Page
with another entity This plain reading is also supported by the fact that the
Supporting Statement focuses principally on the purported disadvantages faced
by the Company as result of its market capitalization approximately $900
million something that could be addressed by growth through acquisitions or
combinations
The Response Letter uses the phrase maximize shareholder value rather than
the phrase actually used in the Proposal maximize share value We believe
this is subtle but substantive difference While ambiguous the concept of
maximizing share value could be construed to relate to short-term goal of
realizing high share price while maximizing shareholder value is broader
concept that could involve long-term value creation consistent with applicable
fiduciary duties In the last paragraph of Section II on page of the Response
Letter the Proponent notes that the context of any sale of the Companythe independent committee and the Board will have among their fiduciary
duties the maximization of shareholder value and asserts that no confusion
would result from this common scenario However maximization of
shareholder value is not used in the Proposal The fact that the Proponent felt
compelled to provide lengthy explanation and resorted to using different
phrase in the Response Letter supports the Companys view that the Proposal
and the Supporting Statement are excludable as vague and indefinite The
specific language of the Proposal is also significant to our opinion that the
Proposal Is properly excludable under Rule 14a-8i2 as discussed in the
Request Letter and later In this supplemental correspondence
The Response Letter ignores the reference in the Proposal to the role of
management in forming the committee As discussed in the Request Letter the
reference to management further adds to the ambiguity of the Proposal because
it is not clear what role management may play in implementing the Proposal
Also as discussed in the Request Letter because the Proposal requests that
management do something it cannot do i.e form committee of the board of
directors we are of the opinion it is excludable under Rule 14a-8i6 This
basis for exclusion was not meaningfully addressed In the Response Letter
In the second paragraph of Section ll.B of the Response Letter the Proponent asserts
that sale of assets is not vague or indefinite even though the phrase could be
interpreted varyingly as calling for sale of all of the Companys assets or piecemeal
sales of Company properties i.e transactions in which the Company regularly
engages in the ordinary course of Its business While the Proponent attempts to
recast the Proposal and Supporting Statement as calling for sale of the Company by
whatever means are chose sic by the Board and the committee this statement
contradicts the actual language of the Proposal The fact that the Proposal and
Supporting Statement are susceptible to such varying readings and interpretations
condemns them as Impermissibly vague and indefinite
The Proponent asserts that the Request Letter did not cite any precedent where
supporting statement was used by the Staff to reinterpret the dear instructions In
proposal as being vague As demonstrated above and in our Request Letter we
dispute the contention that the Proposal contains clear instructions Furthermore we
602997891
Page
believe there is ample precedent for reading the Proposal and Supporting Statement
together In Staff Legal Bulletin 14B dated Sept 15 2004 SLB 14B the Staff
explicitly described the vague or indefinite basis for exclusion as follows
the resolution contained in the proposal is so inherently vague or
indefinite that neither the stockholders voting on the proposal nor the
company in implementing the proposal if adopted would be able to
determine with any reasonable certainty exactly what actions or
measures the proposal requires this objection also may be aDpropriate
where the orooosal and the surnortina statement when read toiether
have the same result emphasis added
We also believe that the no-action letters cited in the Request Letter demonstrate the
application of this principle in the context of proposals less vague and Indefinite thn
the Proposal See for example Bank of America Corp avail Mar 12 2013 Staff
permitted the exclusion of proposal which called for the companys board to appoint
committee to explore extraordInary transactions that could enhance shareholder
value as vague and indefinite where the proposal and supporting statement were
internally inconsistent such that neither shareholders nor the company would be able
to determine with any reasonable certainty exactly what actions or measures the
proposal requires
Section III of the Response Letter False and Misleading under Rule 14a-
8133
The Proponent attempts to refute the Companys arguments for exclusion based on
false and misleading statements by leaving aside the merits and summarily asserting
that the Companys objections fall into the categories identified in SLB 14B as either
not materially false and misleading and can be countered by the Company or are the
opinion of the Proponent However the Response Letter ignores another category
discussed in SLB 14B that continues to serve as proper basis for exclusion factual
statements that are objectively demonstrated to be materially false or misleading As
we demonstrated In the Request Letter most of the statements in the Supporting
Statement fall squarely into this latter category We also believe It is sIgnificant that the
Proponent made no effort in the Response Letter to demonstrate that the statements
we identified in the Request Letter were not false or misleading or to explain why the
statements were not material In the context of the Proposal
The focus of the Supporting Statement is the Proponents belief that because the
Companys size and financing activities have led to an underperforming share price
maximum share price could only be realized through transaction In the Supporting
Statement the Proponent implies specific and materially erroneous NAV per share
when discussing the dilutive Impact of recent share issuance Furthermore the
Proponent employs myriad of undefined comparison groups and inherently
misleading interest rate Information to materially misrepresent the Companys actual
performance fact is material if uthere is substantial likelihood that reasonable
shareholder would consider It important in deciding how to vote TSC Industries Inc
Northway Inc 426 U.S 438 449 1976 In the context of the Proposal statements
as to value financing and shareholder returns are unquestionably material and specific
602997891
Page
statements as to value financing and shareholder returns without any reasonable basis
or support are inherently and objectively misleading Because the Company has
objectively demonstrated and the Proponent has not refuted that the Proposal and
Supporting Statement are replete with false and misleading statements exclusion is
warranted See for example Bear Steams Cos Ins avail Jan 30 2007 Staff
permitted exclusion where the company demonstrated that the proposal and supporting
statement contained numerous false and misleading statements
In SLB 14B the Staff described its long-standing practice of permitting minor revisions
for Nproposals that comply generally with the substantive requirements of Rule 14a-8
but contain some minor defects that could be corrected easily However as stated in
Staff Legal Bulletin No 14 dated July 13 2001 1SLB 14N when proposal and
supporting statement will require detailed and extensive editing In order to bring them
Into compliance with the proxy rules the Staff may find It appropriate for companies to
exclude the entire proposal supporting statement or both as materially false or
isIeading Rule 14a-8i3 states 1Questlon If have complied with the procedural
requirements on what other bases may company rely to exclude my proposal
followed by fif the orooosal or suooortina statement is contrary to any of the
Commissions proxy rules induding 14a-9 which prohibits materially false or
misleading statements in proxy soliciting materials There is nothing In SLB 14B that
changes this rule to prevent an entire proposal from being excludable because of the
materially misleading character of proposal or supporting statement As outlined In
the Request Letter because virtually all of the assertions made by the Proponent in the
Supporting Statement are materially false and misleading and relate to matters
fundamental to shareholders evaluation of the Proposal the Supporting Statement
would have to undergo major revisions to bring it into compliance with Rule 14a-9
Therefore the Proposal and the Supporting Statement should be excluded under Rule
14a-8i3 as contrary to the Commissions proxy rules In addition even if revisions to
the Supporting Statement were permitted as previously discussed the Proposal itself
would remain so vague and indefinite as to be excludable under Rule 4a-8l3
Section IV of the Response Letter Ordinaiy Business Exclusion under Rule
14a-8
As we described in the Request Letter the inconsistent references to usaIe asale or
mergers and sale or merger of the Company or its assets not only make the Proposal
vague and misleading but also may bring within the scope of the Proposal non-
extraordinary transactions which are ordinary business matters For example the sale
of assets may include selective property sales which the Company regularly
consummates in the ordinary course of its business In the Response Letter the
Proponent asserts that the Proposal is clear on its face and only relates to
extraordinary transactions For the reasons expressed in the Request Letter and this
supplemental correspondence we disagree that the Proposal when read together with
the Supporting Statement Is clearly limited in such manner As the Proposal could
reasonably be interpreted to encompass non-extraordinary transactions we believe it is
properly excludable under Rule 14a-8i7 as we demonstrated In the Request Letter
602997891
Page
Section of the Response Letter Violation of Slate Law under Rule 14a-
8i2
In Section of the Response Letter the Proponent attempts to refute our opinion that
the Proposal if implemented would violate Ohio law and consequently is excludable
under Rule 14a-8l2 The Response Letter again seeks to distance itself from the
actual language of the Proposal by attempting to change the meaning and minimize the
significance of the words pursueR and seek and to amend the phrase maximize
share value to read maximize shareholder value The assertion in the Response
Letter that members of the appointed committee would continue to be free to exercise
all discretion and fiduciary duties in pursuing transaction is simply incorrect The
members of such committee would be charged with undertaking specific action
pursuit of sale with specific goal maximizing share value While we agree that
apursue does not mean consummate if the Proposal were implemented as written
the committee members would nonetheless be mandated to take specific course of
action regardless of whether such members deemed that course of action proper and
consistent with their authority and fiduciary duties under Ohio law The Proponent is
attempting to equate mandate to pursue and seek with mandate to merely
explore or consider transaction but that is inconsistent with the meaning of those
terms
The second paragraph of Section V.B of the Response Letter is irrelevant to our
opinion that if implemented the Proposal would vIolate Ohio law We acknowledge
that the Proposal is framed as recommendation and the full Board would be free to
exercise its discretion and fiduciary duties in determining whether to implement the
Proposal by forming committee with the mandate described in the Proposal
However the relevant analysis under Rule 14a-8i2 is whether the Proposal if
implemented would violate state law We do not argue that the Board would be
magically impotent as the Response Letter suggests Rather if the Proposal were
implemented as actually written the members of the appointed committee would be
prevented from the full exercise of their discretion and fiduciary duties under Ohio law
The Response Letter also notes that there Is nothing in Ce/ins Financial
Corporation to suggest that boards cannot pursue sale at the highest available
price While this may be true statement It is irrelevant Our point In citing Lewis was
that implementing the Proposal as written would involve directive to the appointed
committee to pursue course of action to maximize share value We cited Lewis to
support the proposition that the maximization of share value is not the applicable
fiduciary duty In Ohio whether in sale context or otherwise board could certainly
pursue sale at the highest available price but only If It determined that doing so was
In the best interests of the corporation and its shareholders as required by Ohio law
The Proposal runs afoul of Ohio law because if implemented by the Board the
appointed committee members would be deprived of their authority and responsibility to
make such determination
We recognize that Ohio corporate law has some unusual nuances We note that
counsel for the Proponent is officed solely In Texas and that none of the Proponents
comments concerning Ohio law is supported by an opinion of Ohio counsel We are
602997891
Page
headquartered in Ohio and affirm our opinion that the Proposal as actually written if
implemented would violate Ohio law as described in the Request Letter
CONCLUSION
Based upon the analysis contained in our Request Letter as supplemented by the
foregoing we respectfully request the Staff to concur that it will take no action if the
Company excludes the Proposal from its 2014 Proxy Materials
We would be happy to provide you with any additional information and answer any
questions that you may have regarding this subject You may contact me tel 216-861-
7090 e-mailshanselmanbakedaw.com or John Harrington tel 216-861-6697
mail iharrinptonbakerlaw.com Please send any correspondence regarding this
matter to my attention
Sincerely
Suzanne Hanseiman
cc Scott Irwin Associated Estates Realty Corporation
602997891
_w_JACKSON WALKER L.LP DjrectDial
214 661-6697 Direct Fax
ATTORNLYS COUNSELORS jsoncijw.com
Januaiy 30 2014
VIA EMAiL
Office of ChiefCounsel
Division of Corporate Finance
Securities and Exchange Commission
100 Street NE
Washington DC 20546
Ladies and Gentlemen
We write in response to respond to the Januaty 2014 letter the No-Action Request sent to
you by Suzanne J-Ianselman Counsel to Associated Estates Realty Corporation the
Company concerning the proposal to be voted on by the Companys shareholders the
Proposal and supporting statement the Supporting Statement submitted to the
Company by Jackson Walker L.L.P on behalf of our client Westdale Construction Co Limited
the Proponent for inclusion in the proxy statement and proxy for the Companys 2014
annual meeting of shareholders the 2014 Proxy Materials
In the No-Action Request the Company requests that the staff of the Division of Corporate
Finance Staff advise the Company that it will not recommend any action to the Securities
and Exchange Commission the Commission if the Company omits the Proposal from its
2014 Proxy Materials
For the reasons set forth below the Proposal is proper for inclusion in the 2014 Proxy Materials
and the Companys arguments that inclusion is not required under Rules 14a-8f 14a-8i3
14a-8i7 14a-8i2 and 14a-8i6 of Rule 14a-8 listed in the order in which they appear in
the No-Action Request are without material factual or legal basis and are contrary to prior Staff
interpretations and as such the Staff should decline the Companys request for assurance that the
Staff will not recommend enforcement action to the Commission if the Proposal is excluded
The Proposal reads as follows
Shareholder Proposal
The Shareholders recommend that the Board of Directors and management act
expeditiously to form an independent committee of the Board to pursue sale of
the Company on terms that will maximize share value for shareholders including
engaging reputable investment bank to actively seek sale or merger of the
Company
Main SUeet Suitc 6000 Dallas Tcxas 75202 214 953-6000 lax 214 953.51122
www.jw.com Austin Dallas tort Worth Houston Sai Angelo San Antonio Member or CLOBALAW
Corporate Secretary
January 30 2014
Page
Supporting Statement
Westdale Construction Co Limited Westdalc believes that the underlying
value of the Companys assets substantially exceeds the Companys market
capitalization and that the value of the Companys assets can be realized through
process resulting in sale or merger of the Company or of its assets
Westdale believes that several factors adversely affect the Companys market
value and prevent that value from fully reflecting its underlying asset value
With market capitalization of approximately $900 million and 2012 revenues of
approximately $175 million the Company is substantially smaller than the
competitors the Company identifies in its public presentations whose market
capitalizations range from approximately $2.3 billion to approximately $18.7
billion with 2012 revenues ranging from approximately $335 million to $2.1
billion As result the Companys general and administrative expenses run
substantially higher than those same competitors with general and administrative
expenses for 2012 being reported as approximately 9.7% of revenues as compared
to range of 2.8% to 5.9% among its competitors with an average of 4.4%
Westdale believes that the Companys size adversely affects its ability to compete
with other public residential REITs
In January 2013 and October 2013 the Company completed the issuance of
unsecured senior notes of $150 million at 4.27% and $100 million at 4.65%
respectively These interest rates are significantly higher than the interest rates
incurred by other public residential REITs unsecured senior notes issued in 2013
Additionally the Company recently issued approximately million shares for
$17.25 per share effectively diluting the Companys net asset value per share by
approximately 4.2% Westdale believes that the Companys financing activities
have had and will continue to have an adverse effect on the Companys market
capitalization
The Companys current dividend yield exceeds all but one of the other public
residential REITs and the Companys stock price has underperformed the MSCI
U.S REIT index over the past three years returning 2.4% as compared to 27.7%
for that index Westdale believes this under performance is reflective of the
markets negative view of the Companys current composition and growth
strategy
Burden of Proof
Pursuant to Rule 4a-8g the burden of persuading the Staff that the Proposal can be
omitted from its proxy statement is on the Company except as otherwise noted in Rule 14a-8 As
detailed below the Company has not met its burden of proof under any of the grounds it
articulates in the No-Action Request
Corporate Secretary
January 30 2014
Page
Rule 14a-8f
Summary of Argument The Company argues in the No-Action Request that it
may exclude the Proposal under Rule 14a-8f on the grounds that the Proponent failed to satisfy
the eligibility requirements of Rule 14a-8b because one of the brokers from whom the
Participant received verification of ownership NBCN Inc NBCN is not Depository
Trust Company DTC participant or an affiliate of such participant As discussed below
this assertion by the Company is incorrect because NBCN is in fact equivalent to DTC
participant consistent with the function of the CDS Clearing and Depository Services Inc
CDS Direct Link Program
Analysis The Company argues in the No-Action Request that it may exclude the
Proposal under Rule 14a-8f on the grounds that the Proponent failed to satis the eligibility
requirements of Rule 4a-8b because one of the brokers from whom the Participant received
verification of ownership from NBCN is not DTC participant or an affiliate of such
participant The Company acknowledges that NBCN appears on the DTC participant listing
and that the shares held in the NBCN account with DTC are shown in the DTC securities
position listing but argues that NBCN is not DTC participant because it participates in the
DTC system through CDS which is not an affiliate of NBCN making NBCN neither DTC
participant or the affiliate of DTC participant This is novel argument that has not been
construed by the Staff up to this point However the argument fails because NBCN is indeed
equivalent to DTC participant by virtue of being sponsored for direct membership by CDS
through its DTC Direct Link Program which gives sponsored members full DTC privileges and
control over their settlement activities once they transfer their holdings to the DTC nominee
name Cede Co See Exhibit for an explanation of the Direct Link Program NBCNs
appearance on the DTC securities position listing shows that it has put its securities in the
nominee name Cede Co and has its own account with DTC and is thus equivalent to DTC
participant This fits with the policy articulated in Staff Legal Bulletin No 14F SLB 14Fwhere the Staff took the position that introducing brokers will no longer be sufficient to veri1y
proponents ownership of shares The Staff continued to count DTC participants as registered
owners under SLB 4F and extended this to affiliates of OTC participants under Staff Legal
Bulletin 140 because the holdings of DTC participants are easily verifiable at any time if
corporation requests DTC securities position listing The Staff also reiterated the position that
it has never required proponent to obtain verification from DTC or Cede Co The
Companys argument taken to its logical conclusion would mean that all Canadian banks and
brokerages are not registered holders of securities but must instead obtain verification of
ownership from COS This requirement would be substantially equivalent to requiring
verification from DTC or Cede Co and defeats the whole purpose of the Direct Link program
between CDS and DTC as well as the justification of the Staff articulated in SLB 14F As such
adoption of the Companys view would have chilling effect on shareholders participating in
the proposal process under Rule 14a-8
Corporate Secretary
January 30 2014
Page
II Rule 14a-8i3 Proposal is not Impermissibly Vague and Indefinite
Summary of Argument The Company argues that .the Proposal is excludable
pursuant to Rule 14a-8i3 because it contains conflicting mandates resulting in internal
inconsistencies within the Proposal and the Supporting Statement which make it impossible for
either the shareholders voting on the Proposal or the Company in attempting to implement the
Proposal to understand exactly what the Proposal requires Specifically the Company argues
that the Proponent alternatively calls for sale of the Company sale or merger of the
Company or sale or merger of the Company or its assets and state that the Proponents
references to mergers and asset sales contemplate transactions other than sale of the Company
This contention is without merit as the language of the Proposal and the Supporting Statement
are clear on their respective faces
Analysis The Company notes that the Staff has taken the position that proposal
should be read in conjunction with its supporting statement The Proposal and the Supporting
Statement use commonly understood language and are clear on their respective faces In the
Proposal the use of the word merger clearly modifies the initial clause of the proposal calling
for sale of the Company and is intended to make clear that the expectation is that the
Company is not to be limited in the form of transaction it considers when seeking sale The
Proposal provides for the following actions to occur on the part of the Board and management
the Board forms an independent committee of directors with the mandate to pursue sale of
the Company on terms that maximize shareholder value and the appointed committee take
steps to pursue such sale including engaging reputable investment bank to actively seek sale
or merger merger in this context referring to sale by way of merger There is nothing about
either step of the Proposal that should be vague or confusing to either shareholders voting on the
Proposal or to the Board and management Nothing in the Supporting Statement suggests
different interpretation of the words in the Proposal Consequently the Proponent believes the
Companys argument for exclusion of the Proposal on vagueness grounds to be without merit
The reference to sale or merger of the Company or of its assets in the Supporting
Statement must be read in conjunction with the rest of the sentence from which it was pulled and
the rest of the Proposal and Supporting Statement The Proponent in the first sentence of the
Supporting Statement states its belief that the underlying value of the Companys assets
substantially exceeds the Companys market capitalization and that the value can be realized
through sale or merger of the Company or its assets The Company suggests that this means
that the Proposal could mean piecemeal sale of assets or even merger of assets correctly
noted as legal impossibility but clearly not the right reading of the sentence However the
Supporting Statement does not recommend or mandate that the Company do anything nor does it
intend to explain the process by which the Company is to handle sale Instead this sentence of
the Supporting Statement merely articulates the Proponents belief that the value of the
Companys assets substantially exceeds its market capitalization and that this value can be
realized through sale of the Company by whatever means are chose by the Board and the
committee The Company has not presented single no-action letter where supporting
statement was used by the Staff to reinterpret the clear instructions in proposal as being vagueThe Supporting Statement should follow the Proposal and not the other way around
Corporate Secretary
January 30 2014
Page
The Company cites Fuqua Industries Inc for the proposition that Proposal may be
excluded where corporation and its shareholders might interpret the proposal differently such
that any action ultimately taken by the company upon implementation of the proposal could be
significantly different from the actions envisioned by the shareholders voting on the proposal
However Fuqua Industries has very different factual context than the Proposal and the
Company does not satisfactorily explain how the shareholders would be confused by the
Proposal which if implemented by the Board requires only two steps This is very unlike the
confusing and grammatically complex proposal at issue in Fuqua Industries Indeed the
Proposal is even strongerthan that in Temple Inlana Inc avail Feb 28 1998 where the
Proposal read ...immediately engage the services of nationally recognized investment banker
to explore all alternatives to enhance the value of the company including but not limited to
possible sale merger or other transaction for any or all assets of the company The Staff was
unable to concur that the Proposal or the Supporting Statement in Temple-Inland could be
excluded for vagueness despite arguments by the issuer similar to some of the arguments being
made by the Company including almost word for word the argument in the second to last
paragraph on page of the No-Action Request
The Company also makes the argument that the Proponents use of the phrase
maximization of shareholder value would confuse shareholders because the shareholders will
not know what factors other than price are being considered by the Board in their analysis of
various strategies to maximize shareholder value The Company also professes to be confused as
to how to pursue sale that would maximize shareholder value and states that the Proposal
would confuse the appointed committee These arguments are simply resolved The Proposal
does not call for the Board to form committee to identify ways to maximize shareholder value
Instead it calls for the formation of an independent committee to pursue sale on terms that
maximize shareholder value In the context of any sale of the Company the independent
committee and the Board will have among their fiduciary duties the maximization of
shareholder value It is unlikely that the Companys current Board advised as they are by
competent experienced counsel will be confused about that duty should it arise Similarly it
is unlikely that the shareholders will be confused about what would happen in the pursuit of
sale of the Company by board committee The appointment of independent committees under
circumstances similar to those proposed by the Proposal are common and are commonly
understood by shareholders as are companies seeking the types of transaction suggested by the
Proposal
III Rule 14a-8i3 Proposal is not replete with False and Misleading Statements
The Company argues that the Proposal can be excluded because it is replete with false
and misleading statements Leaving aside the merits of its contention not one of the no-action
letters cited by the Company with respect to l4a-8i3 in the No-Action Request permitted
company to exclude the proposal itself on the grounds that statements in supporting statement
were false and misleading In OfficeMax Inc avail Mar 19 2002 the no-action request was
mooted by withdrawal of the Proposal by the proponent In BosionFed Bancorp avail Mar
17 2000 no-action relief was granted because the company had already substantially
imjlemented the proposal at issue As such neither of these two no-action letters are relevant In
Corporate Secretary
January 30 2014
Page
every other no-action letter referenced on Page 11 of the No-Action Request the proponent was
allowed to revise the offending parts of its supporting statement Where such revisions not
accomplished in the time period granted by the Stafl the company would have been allowed to
exclude the offending portions of the supporting statement but not the whole supporting
statement or any of the proposal Keystone Financial Inc avail Mar 2000 was the most
permissive to the company and would have allowed it to exclude all but the proposal and the last
two lines of the proponents supporting statement These letters suggest that at most the
Company can argue for the exclusion of all of the Supporting Statement although this would go
beyond Keystone but not the Proposal as there are no statements of fact in the Proposal Staff
Legal Bulletin 4B SLB 14B states that company objections to unsupported factual
assertions non-materially false or misleading factual assertions that may be countered to
factual assertions that may be interpreted by shareholders in manner that is unfavorable to the
company its directors or officers and statements of opinion the shareholder proponent or
referenced source not identified specifically as such are to be dealt with in the companys
statement in opposition The Companys objections to Proponents Supporting Statement fall
into these categories identified in SLB 4B as they all either not materially false or misleading
and can be countered by the Company or are the opinion of the Proponent and should be
addressed in the statement in opposition not by exclusion or revision
IV Rule 14a-Si7
Summary of Argument The Company argues that Although on its face the
Proposal calls for formation of committee to pursue sale of the Company and thus in certain
respects resembles the language used in some proposals where companies have not met their
burden of demonstrating why the proposal was properly excludable such as the proposal in First
Fran/din Corp for example the remainder of the Proposal and the entirety of the Supporting
Statement are related to broader issues that encompass non-extraordinary transactions and other
ordinary business matters As discussed below this argument is without merit because the
Proposal is quite clearly recommendation that the Board takesteps forming an independent
committee to pursue sale of the Company as part of this process the independent committee is
to retain an investment bank sale of the Company is undoubtedly an extraordinary
transaction and therefore the Proposal relates only to extraordinary transactions much like those
proposals in Allegheny Valley Bancorp Inc avail Jan 2001 and First Franklin Corp avail
Feb 22 2006 The Supporting Statement contains no statements identiling non-extraordinary
business purpose for the sale transaction and so the facial meaning of the Proposal must stand
Analysis The Company argues that the Proposal can be excluded on the grounds
that it relates to both extraordinary and non-extraordinary business transactions However by its
own terms the Proposal refers to extraordinary transactions only The Company cites both First
Charter Corp avail Jan 18 2005 and Allegheny Jalley to show the distinction the Staff makes
towards proposals relating to general obligations of the board of company to serve the interests
of corporations shareholders with those that direct the board and management to take specific
steps in connection with an extraordinary corporate transaction In Firs Charter the proposal
requested that board take several actions including Ibrming committee of independent
directors with authority to explore strategic alternatives for maximizing shareholder value
Corporate Secretary
January3O20l4
Page
including the sale of the corporation and directing the committee to retain an investment
banking firm to advise an independent directors committee about strategic alternatives which
would maximize shareholder value The Staff agreed with the issuers contention that the
proponents proposal referred to both non-extraordinary transactions and extraordinary
transactions In contrast in Allegheny Valej the Staff did not allow exclusion of proposal that
called for board to retain an investment bank to solicit offers of the banks stock or assets and
to present the highest cash offer within 120 days for the stockholders acceptance or rejection of
the offer
The Proposal is more like the proposal in Allegheny Valley than that in First Charter
The Proposal does not call for the Board to do anything other than form an independent
committee to pursue sale of the Company on terms maximizing shareholder value and as part
of the process to retain an investment bank to actively seek sale or merger of the Company both
of which are tasks related only to an extraordinary transaction namely the sale of the CompanyJust like Allegheny Valley the Proposal calls for the retaining of an investment bank and even
provides alternative potential means of sale in the Proposal stock or assets in the case of
Allegheny Valley and sale or merger in the case of the Proposal The only real difference is
there is no requirement for the presentation of the best offer to the shareholders in the Proposal
In contrast First Charter called for forming committee to explore strategic alternatives
including sale and appointing an investment bank to advise on strategic alternatives which
would maximize shareholder value This proposal by its very terms involved non-extraordinary
transactions The Proposal does not suffer from the defects of the First Charter proposal and
does not instruct the appointed committee to pursue anything other than sale of the Company
The Company concedes that in other no-action letters including First Fran/din where the
proponent requested that companys board engage an investment bank to evaluate alternatives
that could enhance shareholder value including merger or sale and where the board was
instructed take all other steps necessary to actively seek sale or merger of company on terms
that will maximize shareholder value for shareholders the Staff did not allow the exclusion of
proposal The First Franklin proposal is closer to First Charter than the Proponents is because
it calls for the engagement of an investment bank to evaluate alternatives that could enhance
shareholder value The Proposal on the other hand calls for the committee to be formed only for
the purpose of pursuing sale of the Company and the investment bank to be engaged to actively
seek sale or merger which is the same language used without problem in First Franklin
Given that the Proposal lies between Firs Franklin and Allegheny Valley and in both cases the
Staff did not grant no-action relief the Proposal would seem to fall comfortably into the class of
proposals that relate to extraordinary transactions only and not suitable for no-action relief under
l4a-8l7
The Company attempts to make the argument that the Proponent meant to say something
completely different than what is written in the Proposal based on its reading of the Supporting
Statement The Company cites three no-action letters for this purpose The first of these
PepsiCo Inc avail Mar 2011 relates to shareholder proposal which requested that Pepsi
report on its regulatory and public policy activities While PepsiCo demonstrates that the Staff
does read proposals and supporting statements holistically at least in certain cases it provides
Corporate Secretary
January 30 2014
Page
very little insight into the extraordinary business transaction context The second letter Fab
Industries Inc avail Mar 23 2000 is even less applicable as the Staff gave the proponent an
opportunity to revise its supporting statement to recast it as recommendation and to correct
certain factual issues in the supporting statement and would not have omitted the proposal in
question at all As revised at the instructions of the Staff the proposal in Fob Industries would
resemble the Proposal Walt Disney Co avail Dec 15 2004 similarly to PepsiCo relates to
public policy activities and is not relevant to the extraordinary transaction context
On the strength of this unrelated precedent the Company then attempts to recast the
Proposal as one which calls for the exploration of both extraordinary and non-extraordinary
transactions The Company provides bullet point list of assertions which purport to
demonstrate how the matters discussed in the Supporting Statement convert the Proposal from
one covering only extraordinary transactions to non-extraordinary transactions merely from the
topics discussed in the Supporting Statement In the Companys first three bullet points it
contorts the ordinary meaning of the words in the Proposal similar to the spurious lines it used to
argue the Proposal was vague and suggests that because the Supporting Statement refers to issues
that could be addressed by non-extraordinary transactions the Proposal must also contemplate
non-extraordinary transactions despite the clear language in the Proposal referring only to
extraordinary transactions In none of these first three bullet points does the Company make any
effort to distinguish Firs Franklin which uses language very similar to language that the
Company complains of in these bullet points The Companys final bullet point tries to
distinguish First Fran/din by arguing that the Supporting Statement does not state how sale
will maximize shareholder value or discuss specific extraordinary transaction and therefore is
different from that in First Franklin While such discussion in the supporting statement mayhave been necessary in First Franklin because the language of the proposal in First Franklin
called for engaging an investment banker to evaluate alternatives that could enhance
shareholder value including. .a merger or outright sale the Company does not cite
requirement for supporting statement to discuss why value will be maximized by an
extraordinary transaction or to discuss specific extraordinary transactions in order for proposal
to relate only to extraordinary transactions The lack of such material in the Supporting
Statement simply cannot work an alchemic transformation of the plain words of the Proposal
calling for sale of the Company into one that calls for committee to explore non-extraordinary
transactions in addition to sale
The Company does cite two additional no-action letters where the Commission granted
no-action relief that relate to extraordinary transactions The first va/on Holdings Corp
avail Jan 23 2003 dealt with proposal that on its face contemplated only extraordinary
transactions but where the supporting statement stated an explicit non-extraordinary business
purpose namely to determine the market value of the issuer The Staff in va/on Holdings
found that the determination of market value is an ordinary business purpose and that because of
this clearly articulated purpose in the supporting statement the proposal encompassed non-
extraordinary transactions and therefore was excludable In contrast the Supporting Statement
contains no such contradictory statement of purpose In order to counteract the plain language in
the Proposal the Supporting Statement would have to contain statement equally as plainly
Corporate Secretary
January 30 2014
Page
related to an ordinary business purpose as that in va/on Holdings and that contradicted the
Proposals language As the Supporting Statement does not contain any such statement va/on
Holdings is not applicable to the Proposal or the Supporting Statement In Sears Roebuck and
Co avail Feb 2000 the Staff allowed the exclusion of proposal because the proposal
related to both extraordinary and non-extraordinary transactions the proposal requested sale of
all or part of Sears The Staff did not exclude the proposal because the supporting statement
read in conjunction with the existing proposal really dealt with business plans although the
Company did make that argument but rather because sales of part of Sears would be non-
extraordinary transactions As such Sears is irrelevant to the Companys argument for
exclusion
In sum the Company is arguing that the Proposal which reads The Shareholders
recommend that the Board of Directors and management act expeditiously to form an
independent committee of the Board to pursue sale of the Company on terms that will
maximize share value for shareholders including engaging reputable investment bank to
actively seek sale or merger of the Company actually means The Shareholders recommend
that the Board of Directors and management act expeditiously to form an independent committee
of the Board to consider strategic alternatives to maximize share value for shareholders
including but not limited to sale of the Company.. This construction of the Proposal is
inconsistent with the plain language of the Proposal itself and no language in the Supporting
Statement supports such reading In effect the Company suggests that the Proponent attempted
to frame the Proposal in devious manner to attempt to slip it pastthe ordinary business
exclusion rule As discussed above the Proposal clearly suggests an extraordinary transaction
and is therefore not excludable under Rule 14a-8i7 because it deals with extraordinary
transactions alone
Rule 14a-8i2
Summary of Argument The Company argues that Because the implementation
of the Proposal would require the Committee to pursue sale it would require the directors
participating on the Committee to abdicate their fiduciary responsibilities to consider other
strategic alternatives that may be in the best interests of the Company and its shareholders
There is no indication in either the Proposal or the Supporting Statement that the Proponent
seeks to compel the Board or independent committee to abdicate any fiduciary duty The
Proposal does not seek to compel any transaction or even transaction Instead it suggests the
formation of an independent committee of the Board to pursue sale of the Company on terms
that will maximize share value for shareholders including engaging reputable investment bank
to actively seek sale or merger of the Company Seeking and pursuing are not consummating
Again the Proponent expects that the Board and the independent committee will be well advised
by counsel and will at all times seek to perform their duties including while pursuing sale or
merger in manner that is consistent with their respective fiduciary duties The Company also
argues that the Proposal requires the Committee to look only to maximizing share value which
is inconsistent with the duty of directors to consider the overall best interests of the corporation
as rcquircd by O.R.C Section 1701.59B This argument is also without merit Again as
discussed above if thc Board and an independent committee were to do as the plain language of
Corporate Secretary
January 30 2014
Page 10
the Proposal suggests they would pursue an extraordinary transaction but would continue to be
free to exercise all discretion and fiduciary duties in doing so because nothing in the Proposal or
the Supporting Statement requires transaction or any transaction
Analysis The Proposal would not require the Company to violate Ohio law The
Company argues that the use of the words pursue and seek in the Proposal would mandate
the directors on the committee to approve sale transaction and therefore that it removes their
discretion under Ohio General Corporate Law ordinary meaning of these words and forces them
to violate their fiduciary duties As with the discussion above this is tortured reading of the
Proposal The pursuit of transaction in the abstract does not compel transaction or any
particular transaction that presents itself nor does not seek to compel the directors to violate any
duty or law It is within the realm of possibility that the Board when presented with possible
transaction will in the exercise of its fiduciary duties decline to proceed Nothing in the
Proposal or the Supporting Statement precludes that result although the Supporting Statement
should be read to indicate that the Proponent is of the opinion that that that is an unlikely result
Furthermore the Proposal is shareholder recommendation to the Board There is no
requirement that the Board form committee which in the pasthas led to the exclusion or
request for revision of certain proposal In deciding to form the committee the Board will
exercise its fiduciary duties Should the Board form committee with the directive to pursue
sale of the company as recommended in the Proposal such an action would be within the
Boards power under Ohio law and under the Regulations of the Company Counsel to the
Company has not provided reference to any Ohio law that suggests the board of an Ohio
corporation cannot form committee to pursue sale of corporation If the Board has the
power to form such committee outside the shareholder proposal context then proposal
recommending the formation of committee would not render the Board magically impotent
Counsel to the Company also argues that the Proposal requires the Committee to look
only to maximizing share value which Company counsel suggests is inconsistent with directors
duties to consider the overall best interests of the corporation under Section 1701.59B of the
Ohio Revised Code and that the Proposal would eliminate the directors ability to consider other
factors set forth in Section 1701.59F However again the suggestion that the Proponents
recommendation that committee be formed to pursue sale .of the Company on terms that
maximize shareholder value is the same as mandate that sale occur which maximizes
shareholder value is inconsistent with the plain words of the Proposal If the Proposal is adopted
the directors will remain free from compulsion under the Proposal itself to exercise their
discretion in pursuing the transaction and the independent committee will similarly remain free
to exercise their powers duties if those duties should so indicate to break off pursuit of
particular transaction including doing so as result of considering the factors other than the best
interest of the shareholders as contemplated under Section 1701.59F The Proponent notes
that under Section 1701.59F in considering the best interest of the corporation the only
mandatory interest the Board must consider is that of the Companys shareholders with all other
1701.59F factors to be considered in the discretion of the directors
Corporate Secretary
January 30 2014
Page 11
Counsel to the Company also in this section of the No-Action Request makes an
argument regarding the lack of the applicability of Revlon duties under Ohio law and cites an
Ohio case Lewis Celina Financial Corporation 101 Ohio App 3d 464 Mercer Cty 1995
for this proposition Lewis is entirely irrelevant to the publication of the Proposal The
Proponent is not challenging the directors of the Company for breaching their fiduciary duties in
regards to an already completed transaction or transaction the Company failed to undertake by
arguing that the highest price was not obtained for shareholders Instead Proponent is seeking to
include the Proposal in the 2014 Proxy Materials While Ohio boards may not have Revlon
duties there is nothing in Lewis to suggest that boards cannot pursue sale at the highest
available price in sale or that shareholder recommendation that they do so would cause the
board to violate its fiduciary duty if implemented
VI Rule 14a-8i6
The Company asserts that the Company lacks the power or authority to implement the
Proposal because the Board and management together cannot act to form committee of the
Board This assertion is incorrect It is true that the Board is given the power under both Ohio
law and the Regulations of the Company to form committees That power is not shared with
management and the Proposal does not suggest otherwise What the Proposal does suggest is
that the Board and management move expeditiously toward this goal The Proponent expects
that management plays an important role in advising the Board and the Proposal is structured to
recognize that relationship and encourage but not compel the Board and the management to
move toward the Proposals plain goals As an example of the role that management might play
if special meeting of the Board is required to appoint the committee the chairman of the board
and president of the Company who would commonly be considered management has the
authority to call such special meeting under the Regulations of the Company Similarly
management including in house counsel could also assist the committee in negotiating an
engagement letter with the investment bank with the assembly of diligence materials and with
the evaluation of the financial merits of transactions The Proposal therefore is within the
power of the Board and management acting together and cannot be excluded under Rule 4a-
8i6
Conclusion
Under 14a-8g the Company has the burden of persuading the Staff to exclude
shareholder proposals The Company has not met this burden with respect to Rules 14a-8i34a-8i7 4a-8i2 or 4a-8i6 As the Company has not met its burden the Proponent
respectfully requests that the Staff reject the Companys No-Action Request Furthermore with
respect to the grounds for exclusion articulated under l4a-8I for the Proponents failure to
prove ownership the Proponent notes that NBCN is participant in CDS and is listed on the
DTC Participants list included in Exhibit to the No-Action Request Additionally the
Proponent notes that NBCN appears on the DTC securities position listing Therefore
regardless of whether CDS participant falls into the Staffs existing guidance regarding DTC
participants and their affiliates the Proponent submits that the Staff should consider all CDS
participants listed on the DTC Participant List and appearing on DTC securities position listing
Corporate Secretary
January 30 2014
Page 12
as registered owners within the meaning of Rule 4a-8f and SLB 4F The Staff should deny
no-action relief to the Company with respect to Rule 4a-8f
We would be happy to provide you with any additional information you require to make
your decision as well as answer any questions you have regarding this subject If you have any
questions please contact me tel 214-953-6107 email isoneiw.com or Pete Hyndman tel
214-953-5880 email [email protected]
Please acknowledge receipt of this letter by emailing me at the above listed contact
information copy of this letter is being transmitted simultaneously to the Company and Susan
Hanselman
Very truly yours
effrey Sone
JMSrph
Page 24 redacted for the following reason
Copyrighted Material Omitted
BakerHostetler
Baker Hostetler LLP
PNC Center
1900 East 9Ul Street Suite 3200
Cleveland OH 441 14-3482
216.621.0200
216.696.0740
www.bakeriaw.com
Suzanne Hanselman
January 2014 direct dial 216.861.7090
SHanselrnanbakerlawcon
VIA E-MAIL
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
100 Street NEWashington DC 20549
Re Associated Estates Realty Corporation
Shareholder Proposal of Westdale Construction Co Limited
Securities Exchange Act of 1934Rule 14a-8
Ladies and Gentlemen
This letter is to inform you that our client Associated Estates Realty Corporation the
Company intends to omit from its proxy statement and form of proxy for its 2014
Annual Meeting of Shareholders collectively the 2014 Proxy Materials shareholder
proposal the Proposal and statement in support thereof the Supporting Statement
received from Westdale Construction Co Limited the Proponent
Pursuant to Rule 14a-8j we have
filed this letter with the Securities and Exchange Commission the
Commission no later than eighty 80 calendar days before the Companyintends to file its definitive 2014 Proxy Materials with the Commission and
concurrently sent copies of this correspondence to the Proponent
Rule 14a-8k and Staff Legal Bulletin No 14D Nov 2008 SLB 14D provide that
shareholder proponents are required to send companies copy of any correspondence
that the proponents elect to submit to the Commission or the staff of the Division of
Corporation Finance the Staff Accordingly we are taking this opportunity to inform
the Proponent that if the Proponent elects to submit additional correspondence to the
Commission or the Staff with respect to the Proposal copy of that correspondence
should be furnished concurrently to the undersigned on behalf of the Company
pursuant to Rule 14a-8k and SLB 14D
Atlanta Chicago Cincinnati Clove/and Columbus Costa Mesa Denver
Houston Los Angeles New York Orlando Philadelphia Soattlo Washington DC
Page
THE PROPOSAL AND SUPPORTING STATEMENT
The Proposal and Supporting Statement follow
Shareholder Proposal
The Shareholders recommend that the Board of Directors and management act
expeditiously to form an independent committee of the Board to pursue sale of the
Company on terms that will maximize share value for shareholders including engaging
reputable investment bank to actively seek sale or merger of the Company
Supporting Statement
Westdale Construction Co Limited Westdale believes that the underlying value of
the Companys assets substantially exceeds the Companys market capitalization and
that the value of the Companys assets can be realized through process resulting in
sale or merger of the Company or of its assets
Westdale believes that several factors adversely affect the Companys market value
and prevent that value from fully reflecting its underlying asset value
With market capitalization of approximately $900 million and 2012 revenues of
approximately $175 million the Company is substantially smaller than the competitors
the Company identifies in its public presentations whose market capitalizations range
from approximately $2.3 billion to approximately $18.7 billion with 2012 revenues
ranging from approximately $335 million to $2.1 billion As result the Companys
general and administrative expenses run substantially higher than those same
competitors with general and administrative expenses for 2012 being reported as
approximately 9.7% of revenues as compared to range of 2.8% to 5.9% among its
competitors with an average of 4.4% Westdale believes that the Companys size
adversely affects its ability to compete with other public residential REITs
In January 2013 and October 2013 the Company completed the issuance of
unsecured senior notes of $150 million at 4.27% and $100 million at 4.65%
respectively These interest rates are significantly higher than the interest rates
incurred by other public residential REITs unsecured senior notes issued in 2013
Additionally the Company recently issued approximately million shares for $17.25
per share effectively diluting the Companys net asset value per share by
approximately 4.2% Westdale believes that the Companys financing activities have
had and will continue to have an adverse effect on the Companys market
capitalization
The Companys current dividend yield exceeds all but one of the other public residential
REITs and the Companys stock price has underperformed the MSCI U.S REIT index
over the past three years returning 2.4% as compared to 27.7% for that index
Westdale believes this under performance is reflective of the markets negative view of
the Companys current composition and growth strategy
copy of the Proposal and the Supporting Statement is attached to this letter as
Exhibit
Page
BASES FOR EXCLUSION
We hereby respectfully request that the Staff concur in our view that the Proposal may
properly be excluded from the 2014 Proxy Materials pursuant to
Rule 14a-8f because the Proponent failed to provide the requisite proof of
share ownership satisfying the eligibility requirements of Rule 14a-8bRule 14a-8i3 because the Proposal is impemiissibly vague and indefinite so
as to be inherently misleading
Rule 14a-8i3 because the Supporting Statement is replete with false and
misleading statements
Rule 14a-8i7 because the Proposal deals with matters related to the
Companys ordinary business operations
Rule 14a-8i2 because implementing the Proposal would cause the Company
to violate Ohio law and
Rule 14a-8i6 because the Company lacks the power and authority to
implement the Proposal
BACKGROUND
The Company
The Company is an Ohio corporation and operates as real estate investment trust
or REIT for federal income tax purposes REITs are attractive to investors seeking
income-producing investments because REIT must distribute at least 90% of its
taxable income each year in the form of dividends to its shareholders The Company
develops acquires owns and operates multifamily residential properties and is one of
peer group of only 11 publicly-traded apartment REITs in the United States.1
The Proposal urges the Companys Board of Directors the Board and management
to form an independent committee to pursue sale or merger of the Company to
maximize share value Pursuant to its fiduciary duties the Board is committed to
increasing shareholder value In furtherance of this commitment the Finance and
Planning Committee of the Board composed of majority of independent directors
reviews and oversees managements development and implementation of the
Companys strategic plan During the past several years the Company has actively
pursued strategic objectives that address many of the issues the Proponent presents in
the Supporting Statement
The Company has pursued strategy to increase the net operating income of
its apartment portfolio and improve the quality of the assets in its portfolio by
disposing of older properties which require large expenditures of capital to
maintain and investing in newer properties while simultaneously improving its
The 11 publicly-traded apartment REITs include the Company and Apartment Investment and
Management Company Avalon Bay Communities Inc BRE Properties Inc Camden Property
Trust Equity Residential Essex Property Trust Inc Home Properties Inc Mid-America
Apartment Communities Inc Post Properties Inc and UDR Inc
Page
financial metrics The Company continually reviews its portfolio of properties
and selectively disposes of assets and redeploys the disposition proceeds to
acquire and develop other assets to increase net operating income pay
down debt and improve the balance sheet and repurchase its shares
The Companys financing activities have positively impacted its market
capitalization which has increased 391 .2% in four years from $187.9 million at
December 31 2009 to $923.1 million at December 31 2013
During the same four-year period the Company dramatically improved its fixed
charge coverage ratio which doubled from 1.5 to 1.0 to 3.0 to 1.0 The
Company also significantly increased its pool of unencumbered assets which
currently accounts for approximately 72.2% of net operating income up from
24.6% at December 31 2009 Because of these improved leverage indicators
since 2012 the Companys senior unsecured debt has been rated investment
grade by Moodys Baa3 and Fitch BBB-The Companys long-term shareholders have benefited greatly from the
Companys successful implementation of its strategic plan as overseen by the
Finance and Planning Committee The Companys total return to shareholders
as measured by appreciation in price per share plus dividends paid has been
4% 20% 135% and 304% over the past one-year three-year five-year and
ten-year periods respectively based on KeyBanc Capital Markets Leaderboard
as of December 31 2013 the relevant portions of which are attached as Exhibit
The Companys total shareholder return places it first among public
apartment REITs for the ten-year period and second among public apartment
RE ITs for the one-year period
As such the Company with the oversight of the Finance and Planning Committee of
the Board has established and continues to execute on strategic plans that have
greatly enhanced shareholder value in stark contrast to the statements made by the
Proponent in its Supporting Statement which as further discussed herein are
generally false and misleading
II Procedural History
December 2013 The Proposal and Supporting Statement were delivered to the
Companys corporate office accompanied by documentation
purporting to verify that the Proponent had continuously held at
least $2000 in market value of the Companys securities entitled
to be voted on the Proposal for at least one year prior to the
submission date the Initial Verification of Ownership See
Exhibit
On this same date the Companys deadline for receiving
shareholder proposals for inclusion in the 2014 Proxy Materials
passed
December 18 After confirming the Companys share ownership records do not
2013 identify the Proponent as shareholder of record the Company
through its legal counsel notified the Proponent the Deficiency
Notice that the Initial Verification of Ownership fails to satisfy
Page
the requirements of Rule 14a-8b because it does not evidence
continuous ownership by the Proponent of the required number of
securities for at least one year prior to December 2013 i.e the
submission date of the Proposal and the Proponent is
required to cure the deficiency within 14 days of receipt of the
Deficiency Notice See Exhibit
December 31 By letter dated December 31 2013 the Remedial Response2013 the Proponent through its legal counsel responded to the
Deficiency Notice and purported to remedy the deficiencies
identified therein See Exhibit The ownership verification
statements included with the Remedial Response the Remedial
Verification of Ownership which purported to remedy the stock
ownership gap identified in the Deficiency Notice still failed to
provide the Company with the requisite proof of continuous share
ownership satisfying the eligibility requirements of Rule 14a-8b
January 2014 The 14-day deadline for responding to the Deficiency Notice
expired
ANALYSIS
The Proposal May Be Excluded Under Rule 14a-8f Because The
Proponent Failed To Provide The Requisite Proof Of Share Ownership
Satisfying The Eligibility Requirements Of Rule 14a-8b
Rule 14a-8f provides that company may exclude shareholder proposal if the
proponent fails to provide evidence of eligibility under Rule 14a-8 Rule 14a-8b
provides that in order for proponent to be eligible to submit shareholder proposal it
must among other things have continuously held at least $2000 in market value or
1% of the companys securities entitled to be voted on the proposal at the applicable
meeting of shareholders for at least one year prior to date the proposal is submitted to
the company If the company is unable to verify ownership from its stockholder records
because proponent is not the registered or record holder of the applicable securities
Rule 14a-8bi enables proponent to prove its eligibility at the time it submits the
proposal by submitting to the company written statement from the record holder of
its securities such as bank or broker verifying the proponents continuous ownership
of the required number of securities for at least one year prior to the submission date of
the proposal.2
In Staff Legal Bulletin No 14F Oct 18 2011 SLB 14F the Staff took the position
that securities intermediaries that are participants in DTC DTC Participants should
be viewed as record holders of securities that are deposited at DTC for purposes of
verifying proponents ownership pursuant to Rule 14a-8b2i In Staff Legal Bulletin
No 14G Oct 16 2012 SLB 14G the Staff extended the position announced in
SLB 14F to include affiliates of DTC Participants Conversely shareholder that
owns shares through broker or bank that is neither DTC Participant nor an affiliate
proponent may also verify ownership by reference to certain filings made under Section 13
or Section 16 of the Securities Exchange Act of 1934 The Proponent has not made any such
filings
Page
of DTC Participant must obtain and submit two proof of ownership statements one
from the shareholders broker or bank confirming the shareholders ownership and one
from the DTC Participant or an affiliate of the DTC Participant through which the
securities are held confirming the ownership of the shareholders broker or bank
The Initial Verification of Ownership submitted by the Proponent with the Proposal on
December 2013 did not satisfy the Rule 14a-8b stock ownership requirement The
ownership statements included in the Initial Verification of Ownership did not evidence
continuous ownership by the Proponent of the required number of securities for at least
one year prior to December 2013 i.e the submission date of the Proposal Within
14 days after receiving the Proposal and the Initial Verification of Ownership the
Company though its legal counsel submitted the Deficiency Notice to the Proponent
which explained the actions the Proponent must take to remedy the deficiencies in the
Initial Verification of Ownership referred the Proponent to SLB 14F and identified the
deadline by which all such remedial actions must be completed See Exhibit
On or about December 31 2013 the Proponent through its legal counsel submitted
the Remedial Response which purported to remedy the defects identified in the
Deficiency Notice and otherwise verify the Proponents eligibility under Rule 14a-8bSee Exhibit However the Remedial Response did not provide the Company with
valid evidence that the Proponent held at least $2000 in market value of the
Companys common stock for at least one year prior to December 2013
Specifically because the Proponent is not record holder of the required number of
shares and at least one of the verification statements included in the Remedial
Verification of Ownership is from an entity NBCN Inc.3 that is neither DTC
Participant nor an affiliate of DTC Participant the Proponent has failed to provide the
Company with the requisite proof of share ownership satisfying the eligibility
requirements of Rule 14a-8b in manner that complies with the guidance announced
by the Staff in SLB 14F and SLB 14GUnfortunately because the Proponent submitted the Proposal to the Company at the
deadline for the submission of shareholder proposals with respect to the 2014 Proxy
Materials and the Proponent did not submit the Remedial Response until December
31 2013 insufficient time remained for the Company to provide the Proponent with
further deficiency notice with respect to the Remedial Verification of Ownership prior to
the submission deadline of this letter
The Staff has consistently permitted companies to exclude shareholder proposals
pursuant to Rule 14a-8b and Rule 14a-8f1 when insufficient proof of ownership is
submitted by the proponent See e.g Union Pacific Corp avail Jan 29 2010
concurring with the exclusion of shareholder proposal under Rule 14a-8b and Rule
14a-8f and noting that the proponent appears to have failed to supply within 14 days
of receipt of Union Pacifics request documentary support sufficiently evidencing that it
has satisfied the minimum ownership requirement for the one-year period required by
Rule 14a-8b Cisco Systems Inc avail July 112011 I.D Systems Inc avail
the list of DTC accounts located on the website of the Depository Trust Company at
http//www.dtcc.com//media/Files/Downloads/client-center/DTC/alPha.aShX includes an
account identified as NBCN lnc./CDS and we acknowledge that positions in securities held
for NBCN Inc in that account are reflected in DTC securities position listings NBCN Inc is not
DTC Participant or an affiliate of DTC Participant Rather NBCN Inc by and through its
participation in CDS Clearing and Depository Services Inc is permitted to utilize DTCs
Canadian-Link Service See Exhibit for the applicable page of the DTC participant list and
additional materials about the relationship among DTC CDS and CDS member organizations
Page
March 31 2011 Amazon.com Inc avail Mar 29 2011 Time Warner/nc avail
Feb 19 2009 and Alcoa Inc avail Feb 18 2009 Similar to these precedents the
Proponent has failed to provide satisfactory evidence of eligibility to submit the
Proposal under Rule 14a-8 Accordingly the Proposal may be excluded under Rule
14a-8b and Rule 14a-8f1
II The Proposal May Be Excluded Under Rule 14a-8i3 Because It Is
Impermissibty Vague And Indefinite So As To Be Inherently Misleading
Pursuant to Rule 14a-8i3 company may exclude proposal from its proxy
materials if the proposal is contrary to the Commissions proxy rules including Rule
14a-9 which prohibits any false or misleading statements with respect to any material
fact or which omits to state any material fact necessary in order to make the
statements therein not false or misleading In interpreting Rule 14a-8i3 the Staff
has taken the position that proposal may be excluded in its entirety if the language of
the proposal or the supporting statement render the proposal so vague and indefinite
that neither the stockholders voting on the proposal nor the company in implementing
the proposal if adopted would be able to determine with any reasonable certainty
exactly what actions or measures the proposal requires Staff Legal Bulletin No.14B
Sept 15 2004 SLB 14B see also e.g Bank of America Corp avail Mar 12
2013 Amazon.com Inc avail Apr 2010 R.R Donnelly Sons Company avail
Mar 23 2010 International Business Machines Corp avail Jan 13 2010 and
International Business Machines Corp avail Jan 26 2009 proposal excludable as
vague and indefinite with company stating although the might at first blush
seem simple upon closer inspection is subject to multiple conflicting
interpretations For example in Verizon Communications Inc avail Feb 21 2008the Staff concurred with the exclusion of proposal attempting to set formulas for short-
and long-term incentive-based executive compensation where the company argued
that because the methods of calculation were inconsistent with each other it could not
determine with any certainty how to implement the proposal See a/so Prudential
Financial Inc avail Feb 16 2006 concurring with the exclusion of proposal
requiring stockholder approval for certain senior management incentive compensation
programs because the proposal contained key terms and phrases which were
susceptible to differing interpretations
Based on these standards the Proposal is excludable pursuant to Rule 14a-8i3because it contains conflicting mandates resulting in internal inconsistencies within the
Proposal and the Supporting Statement which make it impossible for either the
shareholders voting on the Proposal or the Company in attempting to implement the
Proposal to understand exactly what the Proposal requires
In particular the Proposal if implemented would require an independent committee
the Committeeto pursue sale of the Company on terms that will maximize share
value for shareholders However the Proposal would also require the Committee to
engage the services of an investment banking firm to actively seek sale or merger
emphasis added of the Company Furthermore the first paragraph of the Supporting
Statement states the Proponents belief that the value of the Companys assets can be
realized through the sale or merger of the Company or its assets emphasis addedWe note that the Staff has long taken the position that proposals should be read in
Page
conjunction with their supporting statements SLB 14B See e.g PepsiCo Inc avail
Mar 201
The text of the Proposal is internally inconsistent which inconsistency is severely
compounded when the Proposal and the Supporting Statement are read together On
one hand the Proposal seeks sale of the Company which would presumably mean
sale of the entire Company Such sale could be structured as merger in which
shareholders receive cash equity or combination thereof in exchange for their
shares or as tender offer in which shareholders receive cash equity or
combination thereof in exchange for their shares On the other hand the Proposal also
calls for merger of the Company which could mean an acquisition by the Companyin which the Company would survive and continue as larger enterprise This
interpretation i.e the Company growing rather than being acquired by merger finds
support in the Supporting Statement which alleges the Companys size is an
impediment to realizing value As such an acquisition by merger could address the
Proponents stated concerns about the Company and maximize share value The
Supporting Statement later references sale or merger of the Company or of its
assets While sale of assets could be accomplished in one transaction or series of
related or unrelated transactions which may or may not require the approval of the
Companys shareholders merger of the Companys assets residential properties
is legal impossibility
Obviously the sale of the entire the Company the sale of the assets of the Company
whether in one transaction or in series of transactions and merger which may or
may not result in the Company continuing as the surviving entity are fundamentally
different transactions subject to myriad of possible structures consideration i.e
cash and/or stock and outcomes Consequently it would not be possible for
shareholders voting on the Proposal to determine with any reasonable certainty exactly
what actions or measures the Proposal requires Furthermore shareholders who vote
in favor of the Proposal with the objective of realizing near term liquidity event may be
disappointed if the Committee pursued merger or sale of assets that did not result in
immediate liquidity for shareholders Likewise shareholders who vote in favor of the
Proposal with the objective of increasing the Companys stock price or market
capitalization as means for enhancing long-term shareholder value may be
disappointed if the Committee pursued near term sale or liquidation of the Company
The inconsistent and unusual use of the mandate to maximize shareholder value also
renders the Proposal vague and indefinite If implemented the Proposal would
arguably require the Committee to pursue sale of the Company on terms that will
maximize share value for shareholders The maximization of shareholder value
typically describes the process by which companys directors analyze and select
corporate strategy from number of potential strategic alternatives Thus shareholders
would be left to wonder what factors other than price the Committee would or could
consider in connection with sale or merger Moreover the mandate to maximize
share value does not expressly apply to merger referred to in the Proposal and is not
used at all in connection with merger or asset sale referred to in the Supporting
Statement Thus shareholders would also be left to wonder why the mandate is used in
one instance and not others and what standards might apply to the consideration of
transactions other than sale of the Company
Page
Additionally just as shareholders would be confused as to the myriad of potential
transactions that may be pursued in accordance with the Proposal the Committee
would face significant uncertainty in seeking to implement the Proposal if it were
adopted This uncertainty is exacerbated by the Supporting Statement which does not
provide any insight into how these ambiguities should be resolved Other than the
reference in the first sentence of the Supporting Statement to sale or merger of the
Company or of its assets the Supporting Statement does not describe or reference
any particular type of transaction Rather it raises variety of concerns that could be
addressed in variety of ways Both sale transactions by unlocking asset value and
acquisition transactions by increasing the Companys size could theoretically address
these concerns but various other strategic initiatives might address concerns related to
the Companys expenses its financing costs and its dividend practices Without further
guidance the intent of the Proposal and the Supporting Statement is vague and
ambiguous While simultaneously pursuing litany of conflicting transactions is
theoretically possible it is not possible to ascertain whether this is the course of action
contemplated by the Proposal and it is not course of action companies typically
pursue to enhance shareholder value
The Proposal is also vague and indefinite with respect to the role of management in
implementing the Proposal Although the Proposal recommends that the Board and
management form an independent committee of the Board management which
presumably means the Companys officers and other senior executives although the
term is not defined has no authority to form committee of the Board under Ohio law
or the Companys Code of Regulations as discussed in more detail in Section
Given that management cannot either alone or together with the Board form
committee of the Board it is unclear what role the Proponent expects management to
play in implementing the Proposal We believe that neither shareholders voting on the
Proposal nor the Board and management in implementing the Proposal would be able
to determine with any reasonable certainty what actions or measures the Proposal
requests of management
The Staff has determined that proposal is vague and indefinite so as to justify
exclusion where corporation and its shareholders might interpret the proposal
differently such that any action ultimately taken by the company upon implementation
of the proposal could be significantly different from the actions envisioned by the
shareholders voting on the proposal Fuqua Industries Inc avail Mar 12 1991Due to the Proposals and the Supporting Statements vague and inconsistent use of
the terms sale of the Company sale or merger of the Company sale or merger of
the Company or its assets and maximize share value for shareholders neither the
shareholders voting on the Proposal nor the Company in implementing the Proposal if
adopted would be able to determine with any reasonable certainty exactly what actions
or measures the Proposal requires Accordingly as result of the vague and indefinite
nature of the Proposal and the Supporting Statement and consistent with Staff
precedent the Proposal is impermissibly vague and indefinite so as to be inherently
misleading and therefore excludable in its entirety pursuant to Rule 14a-8i3
Page 10
Ill The Proposal May Be Excluded Under Rule 14a-8i3 Because The
Supporting Statement Is Replete With False And Misleading Statements
Rule 14a-8i3 permits the exclusion of proposal if it is contrary to any of the
Commissions proxy rules including Rule 14a-9 which prohibits false or misleading
statements in proxy soliciting materials The Staff in SLB 14B expressly reaffirmed that
exclusion pursuant to Rule 14a-8i3 is available to companies where among other
things the company demonstrates objectively that factual statement in the proposal
or supporting statement is materially false or misleading
The Company is familiar with Staff Legal Bulletin No 14 July 13 2001 and SLB 14B
and acknowledges that the Staff will allow proponent to revise its proposal and/or
supporting statement if such revisions are minor in nature However the Staff may find
it appropriate for companies to exclude the entire proposal and supporting statement if
detailed and extensive editing would be required to bring them into compliance with the
proxy rules In the instant case the Supporting Statement is replete with materially
false and misleading statements Therefore the Proposal should be excluded in its
entirety
The Supporting Statement Contains Materially False or Misleading
Valuation Statements
The focus of the first paragraph of the Supporting Statement is that the value of the
Companys assets exceeds its market capitalization and that sale or merger is the
means by which the value of the Companys assets can be realized The Proponent
is using the net asset value NAy of the Company synonymously with the value that
would be realized in connection with sale or merger or other transaction
In the fourth paragraph the Proponent states that the Companys recent equity
issuance diluted NAV per share by 4.2% While the Proponent does not disclose its
view of the Companys actual NAV per share either pre-issuance or post-issuance
dilutive impact of 4.2% implies pre-issuance NAV per share of $25.06 and post-
issuance NAV per share of $24.01 The Company does not publicly disclose NAV per
share but these numbers are significantly higher than the range of values used by
analysts and other members of the financial community in their written reports on the
Company We note in particular that consensus analyst estimate of NAV prior to the
offering was $20.54 NAV per share KeyBanc Capital Markets The Leaderboard as of
May 24 2013 the relevant portions of which are attached to this letter as Exhibit
The actual number of shares issued by the Company was 7047958 for $17.25 per share
The Company had 50465248 shares outstanding before the issuance and 57513206
outstanding thereafter In order for the issuance of 7047985 shares at $17.25 resulting in net
proceeds of $116269184 to have caused 4.2% dilution the NAV per share of the Company
would have had to have been $25.06 pre-issuance and $24.01 25.06 95.8% thereafter Our
calculation of these numbers is as follows the pre-issuance NAV pershare of $25.06 times
the pre-issuance total outstanding shares of 50465248 would equal an aggregate NAV of
$1264659114 the aggregate pre-issuance NAV plus the proceeds of the offering
$116269184 would equal an aggregate post-issuance NAy of $1380928298 and the
aggregate post-issuance NAV divided by the post-issuance total outstanding shares of
57513206 would equal $24.01
Page 11
In this context an unsupported misleading statement relating to NAV per share clearly
contravenes Rule 14a-9 As the Commission stated in Release No 34-16833 May 23
1980 such statements with respect to valuation are only appropriate and consonant
with Rule 14a-9 when made in good faith and on reasonable basis and where
accompanied by disclosure which facilitates shareholders understanding See e.gKeystone Financial Inc avail Mar 2000 First Bell Bancorp Inc avaiL Jan 28
1999 NACCO Industries Inc avail Mar 29 2000 Washington Service Bureau Inc
avail Jan 20 2006 OfficeMax Inc avail Mar 19 2002 BostonFed Bancorp avail
Mar 17 2000 and Portsmouth Bank Shares/nc avail Feb 24 1993 The implied
NAV per share values are clearly material as NAV is used by the Proponent as
projection of the shareholders realizable value in sale or merger The calculation of
NAV requires the exercise of significant judgment yet the Proponent makes no effort to
explain the underlying assumptions behind its valuations and there is no disclosure in
the Supporting Statement which facilitates shareholders understanding of the
methodology the Proponent used in calculating per share NAV or dilution Without
supportive disclosure it is inherently misleading to cite material financial metric that
could lead to conjecture about value that might or might not be realizable particularly
where as in the case here the extrapolated value has no reasonable basis in fact
Misleading References to Multiple Undefined Comparison Groups
The Proponent selectively utilizes various comparison groups in order to mislead
shareholders In the third paragraph the Proponent compares the size of the Companyto those of the competitors the Company identifies in its public presentations without
identifying any of the companies in that group In the fourth paragraph the interest
rates payable on the Companys 2013 debt are compared to the interest rates incurred
by other public residential REITs again without any specific identification or support
In the fifth paragraph the Companys dividend yield is contrasted with those of other
public residential REITs but its stock performance is compared to the MSCI U.S REIT
Index the MSCI Index
The use of the MSCI Index is particularly revealing of the Proponents intentional use of
selective and disparate comparison data in order to mislead shareholders For certain
points the Proponent compares the Company to other public residential REITs For
other points the Proponent compares the Company to all public REITs of which
residential REITs such as the Company are very small minority The MSCI Index
encompasses large number of U.S REITs engaged in wide variety of industries
including commercial office buildings medical buildings industrial properties shopping
malls manufactured housing shopping centers self-storage and mixed use properties
In fact the only thing the Company has in common with almost all of the companies
included in the MSCI Index is its status as REIT for income tax purposes
Because REITs are by definition dividend-paying entities total return to shareholders
which includes dividends is the most commonly used metric to analyze the return
REIT provides to its owners While the Companys stock price like that of other public
apartment REITs may have underperformed against the three-year MSCI Index the
Companys ten-year total return to shareholders exceeds that of all other public
apartment REITs its five-year total return to shareholders ranks fourth out of the 11
Page 12
public apartment REITs and its three-year and one-year returns rank fourth and
second respectively among its peers One can only assume the Proponent utilized
very broad-based and largely irrelevant index to artificially diminish the actual
performance of the Companys stock as compared to the other public apartment REITs
In another example the Proponent states in the fourth paragraph that the interest rates
on the Companys unsecured senior notes in 2013 were substantially in excess of
those on other public apartment REITs unsecured notes issued in 2013 Again the
Proponent does not identify these other public apartment REITs or the terms of their
unsecured notes In fact during 2013 the Company was the only public apartment
REIT that issued unsecured notes in private placements To compare debt securities
issued in private placements to those issued in public offerings is materially misleading
Furthermore because interest rates are function of numerous factors including the
maturities of the debt the means by which the debt was sold private placement or
public offering etc reference to interest rates in vacuum is inherently misleading
Moreover since 2012 the Companys unsecured debt has been rated investment
grade by Moodys and Fitch Thus the unsupported inference that the Companys
borrowing capabilities make it non-competitive is simply untrue and materially
misleading
Other Materially False or Misleading Statements
The Supporting Statement includes number of other assertions that are either wholly
inaccurate or omit the necessary context to prevent them from being materially
misleading For example the Proponents reference to the Companys general and
administrative expenses omits the fact that unlike most of other public apartment
REITs the Company doesnt allocate certain expenses to its properties which results
in relatively higher general and administrative expenses As result the statements
regarding the Companys general and administrative expenses are inaccurate and
misleading Similarly the Proponent states that the Companys financing activities
have had and will continue to have an adverse effect on the Companys market
capitalization This statement is false In truth the Companys financing activities
have enabled the Company to increase its market capitalization from $187 million in
2009 to $923.1 million on December 31 2013 while obtaining investment grade ratings
on its debt and producing returns to its shareholders that are superior to most of its
peers These misstatements are particularly material in light of the Proponents
expressed rationale that the Companys size relative to its peers is an impediment
In sum the Proponents Supporting Statement as whole is so replete with false
statements misleading assertions material omissions and manipulation of information
and so devoid of factual support and disclosure that it violates the requirements of
good faith fairness and candor Extensive editing would be required to bring it into
compliance with the proxy rules and therefore the entire Proposal should be excluded
from the Companys 2014 Proxy Materials
Page 13
IV The Proposal May Be Excluded Under Rule 14a-8i7 Because It Deals
With Matters Related To The Companys Ordinary Business Operations
Rule 14a-8i7 provides for the exclusion of shareholder proposal where the
proposal addresses matter relating to companys ordinary business operations
The Commission has explained that the general underlying policy of this exclusion is
consistent with the policy of most state corporate laws to confine the resolution of
ordinary business problems to management and the board of directors Exchange Act
Release No 34-40018 May 21 1998
The Company is incorporated under the laws of the State of Ohio Like most other
states Ohio provides directors with broad discretionary authority to manage
corporations business and affairs Section 1701 .59A of the Ohio Revised Code
provides that where the law the articles or the regulations require action to
be authorized or taken by shareholders all of the authority of corporation shall be
exercised by or under the direction of its directors The Companys articles of
incorporation and code of regulations contain similar language concerning the Boards
authority and do not reserve any power to manage the business of the Company to the
shareholders Ohio courts have interpreted this grant of authority broadly See e.g
Grogan T.W Grogan Co 143 Ohio App 3d 548 561 Cuyahoga Cty 2001 thedirectors of the company speak for the company and exercise all of the authority of the
company In exercising this authority and determining what the directors reasonably
believe to be in the best interests of the corporation directors must consider the
interests of shareholders and may also consider the interests of various other
constituencies as well as both the long-term and short-term interests of the Companyand its shareholders O.R.C Section 1701.59F
In applying Rule 14a-8i7 the Staff has drawn distinction between proposals that
seek to reinforce the boards and managements general obligation to serve the
interests of the corporations shareholders and those that direct management to take
specific steps in connection with an extraordinary corporate transaction Compare First
Charter Corp avail Jan 18 2005 finding proposal mandating formation of
special committee with authority to explore strategic alternatives for maximizing
shareholder value including the sale of the to be excludable pursuant
Rule 14a-8i7 with Allegheny Valley Bancorp Inc avail Jan 2001 finding
proposal directing the board of directors to hire an investment bank for the specific
purposes of soliciting offers for the purchase of the banks stock or assets and
presenting the highest cash offer to the shareholders within 120 days to not be
excludable
The Staff has also acknowledged on several occasions that if any part of proposal
relates to companys ordinary business operations the entire proposal may be
excluded See Donegal Group inc avail Feb 16 2012 stating that
concerning the exploration of strategic alternatives for maximizing shareholder value
which relate to both extraordinary and non-extraordinary transactions are generally
excludable under Rule 14a-8i7 in response to proposal that not only requested
appointment of committee to explore strategic alternatives including sale or
merger but that also specifically requested that the committee be authorized to solicit
offers for specifically structured merger transaction and Central Florida Corp avail
Page 14
Mar 2010 same outcome with respect to similar proposal that not only requested
appointment of committee to explore strategic alternatives including sale or
merger but that also specifically requested that the committee and banker be
authorized to solicit offers for sale or merger See also Anchor Bancorp avail July
11 2013 Peregrine Pharmaceuticals Inc avail July 31 2007 Fifth Third Bancorp
avail Jan 17 2007 AltiGen Communications Inc avail Nov 16 2006 Bristol-
Myers Squibb Co avail Feb 22 2006 Medallion Financial Corp avail May 11
2004 and BKF Capital Group Inc avail Feb 27 2004
In addition to the Allegheny Valley Bancorp letter referenced above we are aware of
other instances where the Staff was unable to concur that proposals that related
exclusively or primarily to extraordinary transactions were excludable pursuant to Rule
14a-8i7 See e.g First Franklin Corp avail Feb 22 2006 proposal requesting
that the board engage an investment bank to evaluate alternatives that could enhance
shareholder value including merger or sale and that the board take all other steps
necessary to actively seek sale or merger of company on terms that will
maximize share value for shareholders was not excludable and Temple-Inland Inc
avail Feb 24 1998 proposal recommending that the board engage the services of
an investment bank to explore alternatives to enhance the value of the companyincluding but not limited to possible sale merger or other transaction for any or all
assets of the company was not excludable with the Staff stating that the proposal
when read together with the supporting statement appears to focus on extraordinary
business transactions
It is important to note that in determining the scope of shareholder proposals and
assessing whether they relate to ordinary business operations the Staff has
consistently read proposals in conjunction with their supporting statements to ascertain
the primary focus of the proposals See e.g PepsiCo Inc stating that the proposal
and supporting statement when read together focus primarily on matters of
ordinary business and concurring in exclusion Fab Industries Inc avail Mar 23
2000 stating that note in particular that the proposal when read together with
the supporting statement appears to focus on possible extraordinary transactions
and Temple-lnlanci Inc see above See also Walt Disney Co avail Dec 15 2004
concurring in exclusion of proposal because although the proposal mentions
significant policy issue the thrust and focus of the proposal is on ordinary
business matter
Applying these precedents to the Proposal we believe it is properly excludable under
Rule 14a-8i7 Although on its face the Proposal calls for formation of committee
to pursue sale of the Company and thus in certain respects resembles the
language used in some proposals where companies have not met their burden of
demonstrating why the proposal was properly excludable such as the proposal in First
Franklin Corp for example the remainder of the Proposal and the entirety of the
Supporting Statement are related to broader issues that encompass non-extraordinary
transactions and other ordinary business matters We note in particular the following
points
The Proposal recommends the formation of committee that will pursue sale
of the Company on terms that will maximize share value for shareholders We
Page 15
believe that shareholders would reasonably interpret this statement as implicitly
relating to something broader than exclusively sale of the Company As
discussed earlier and in more detail in Section under Ohio law any board
committee charged with maximizing shareholder value would have to consider
various options consistent with its fiduciary duty to act in the best interest of the
corporation some of which might not be considered extraordinary In this
respect the Proposal materially differs from the proposal addressed in the
Allegheny Valley Bancorp letter which was focused on specific sale process
and not value maximization more generally
The second clause of the Proposal deals with engagement of an investment
bank to actively seek sale or merger of the Company emphasis addedThe addition of merger to this portion of the Proposal is not only vague as
discussed earlier but also it potentially broadens the scope of the Proposal
merger could include an acquisition of any size which may or may not be
extraordinary.5 In fact growth through one or more acquisitions could be one
way to address one of the primary concerns of the Proponent related to the
Companys market capitalization
The first sentence of the Supporting Statement further broadens the scope of
the Proposal by referencing sale or merger of the Company or of its assets
emphasis added As this introductory sentence of the Supporting Statement
makes clear the primary concern of the Proponent is the idea that the value of
Companys assets is not reflected in the Companys market capitalization As
such sale of assets or certain undervalued assets in particular might be one
way to maximize share value These types of selective divestitures of less than
substantial portion of corporations assets are not extraordinary
transactions.6 This general proposition is particularly true in the case of REIT
such as the Company that engages in multifamily ownership operation
acquisition development construction disposition and property managementactivities language quoted from the Companys most recent Form 10-K with
emphasis added As such acquisition and disposition activities are core
Board and management function for the Company based on both Ohio law and
past practice For example in 2012 and 2013 the Company acquired nine
properties for an aggregate purchase price of $423.8 million and disposed of 10
properties for an aggregate sales price of $206.3 million These transactions
were not extraordinary transactions that required shareholder approval
The remainder of the Supporting Statement confirms that the primary focus of
the Proposal extends beyond one specific type of extraordinary transaction
There is no discussion in the Supporting Statement of why or how sale of the
Company might maximize share value In fact neither sale transaction nor
Pursuant to ORG Section 1701.78D in the case of merger approval by shareholders of
the surviving corporation is only required in certain circumstances such as if the articles or
regulations of the corporation require such approval if the articles regulations or directors were
changed by the merger in manner that would otherwise require such approval or if
significant number of shares were issued by the corporation as consideration for the mergerAs such the Company could consummate acquisitions via merger without shareholder
approval
Ohio law is similar to many other state laws in that shareholder approval is only required in
connection with sale of all or substantially all of the corporations assets outside of the ordinary
course of business O.R.C Section 1701.76
Page 16
any other specific type of significant corporation transaction is even referenced
in the Supporting Statement Instead the Proponent here focuses exclusively
on variety of ordinary business matters including the Companys general and
administrative expenses its debt and equity financing activities and its dividend
practices In situations where proposals have been found to relate only to
extraordinary transactions and thus to not be excludable under Rule 14a-8i7the supporting statements have also focused on extraordinary transactions
See e.g Allegheny Valley Bancorp wherein the proponent supported
proposal specifically targeted at sale process with supporting statement also
primarily focused on sale process and First Franklin Corp discussing
various financial metrics in the supporting statement but also consistently
focusing on merger or sale transaction including referencing industry
consolidation trends and premiums received by shareholders in prior industry
transactions
The Staff has in the past concurred that proposals which seem to relate to
extraordinary transactions on their face may be excluded under Rule 14a-8i7 whenread together with the supporting statement they might also be interpreted as involving
non-extraordinary transactions See va/on Holdings Corp avail Jan 23 2003finding proposal requesting that the board engage an investment banker to solicit
offers for the sale of the companys shares or assets and present the highest offer to
shareholders within 120 days to be excludable under Rule 14a-8i7 when the
supporting statement related primarily to the ordinary business matter of capital
allocation decisions and Sears Roebuck and Co avail Feb 2000 finding
proposal requesting that the company hire an investment bank to arrange for the sale
of all or parts of the company to be excludable under Rule 14a-8i7 companyrequested that the Staff look beyond the narrow interpretation of the and
understand the in conjunction with its supporting statement which focused
on developing new more effective business plans The Staff has also applied this
same principle to the opposite scenario and been unable to concur in the exclusion of
proposals that on their face might involve non-extraordinary transactions but whenread together with the supporting statement the clear intent was limited to
extraordinary transactions See e.g Temple-Inland wherein the language of the
proposal itself was very similar to numerous other proposals that have been properly
excluded as encompassing both extraordinary and non-extraordinary transactions but
because the supporting statement was targeted at specific restructuring activities and
discussed specific industry trends related to those activities the Staff was unable to
concur that the focus of the proposal extended beyond extraordinary transactions
In summary the primary focus of the Proposal and Supporting Statement is similar to
many others where the Staff has concurred that there is some basis for exclusion
pursuant to Rule 14a-8i7 While the specific language used in the Proposal is an
inversion of the language used in similar proposals properly excluded by other
companies in the past i.e the Proposal refers to pursuit of sale of the Company on
terms that will maximize share value as opposed to for example exploration of
strategic alternatives for maximization of shareholder value including sale or
merger given the practical effect of corporate laws of the U.S states and the fiduciary
duties of directors including under Ohio law as discussed in Section the real intent
of the Proposal is the same as those prior proposals formation of committee to
Page 17
consider strategic alternatives to enhance shareholder value including but not limited
to sale of the Company Even if the Staff is unable to concur with our view
expressed in Section that the Proposal is excludable under Rule 14a-8i2 as
violating state law if implemented we believe that the Staff must nonetheless consider
the effect of state law in interpreting the meaning and scope of the Proposal
We believe the Proponent attempted to frame the Proposal as relating only to specific
type of extraordinary transaction i.e sale of the Company so it would not be
excludable pursuant to Rule 14a-8i7 However read in its entirety together with the
Supporting Statement the Proposal is broader and necessarily encompasses ordinary
business matters The result is not only vague and indefinite proposal that would
violate Ohio law if implemented as we explain elsewhere in this letter but proposal
that clearly is intended to extend beyond one specific type of extraordinary transaction
We urge the Staff to focus on the substance and intent of the Proposal and the
Supporting Statement rather than the particular form of resolution utilized and concur
with our view that the Proposal is excludable pursuant to Rule 14a-8i7
The Proposal May Be Excluded Under Rule 14a-8i2 Because It Would
Require The Company To Violate Ohio Law
Rule 14a-8i2 permits registrant to omit shareholder proposal from its proxy
materials if the proposal would if implemented cause the company to violate any state
federal or foreign law to which it is subject This section constitutes our opinion as Ohio
counsel to the Company for purposes of Rule 14a-8j2iii
The Company is incorporated under the laws of the State of Ohio Like most other
states Ohio provides directors with broad discretionary authority to manage
corporations business and affairs Section 1701.59A of the Ohio Revised Code
provides that where the law the articles or the regulations require action to
be authorized or taken by shareholders all of the authority of corporation shall be
exercised by or under the direction of its directors The Companys articles of
incorporation and code of regulations contain similar language concerning the Boards
authority and do not reserve any power to manage the business of the Company to the
shareholders Ohio courts have interpreted this grant of authority broadly See e.g
Grogan 1W Grogan Co 143 Ohio App 3d 548 561 Cuyahoga Cty 2001 thedirectors of the ôompany speak for the company and exercise all of the authority of the
company
Section 1701.59B of the Ohio Revised Code provides that director shall perform
the directors duties as director including the duties as member of any committee of
the directors upon which the director may serve in good faith in manner the director
reasonably believes to be in or not opposed to the best interests of the corporation
emphasis added See also Thomson Cent Ohio CeIIular Inc 93 Ohio App.3d
530 540 Cuvahoqa Cty 1994 stating that Edlirectors of corporation. owe
fiduciary duty to the corporation and to the corporations shareholders collectively
The Ohio Revised Code does not permit the alteration of these fiduciary duties
whether by the articles regulations or otherwise In addition Section 1701.59F of the
Ohio Revised Code provides that purposes of 1701.59 director in
determining what the director reasonably believes to be in the best interests of the
Page 18
corporation shall consider the interests of the corporations shareholders and in the
directors discretion may consider any of the following
The interests of the corporations employees suppliers creditors and
customers
The economy of the state and nation
Community and societal considerations
The long-term as well as short-term interests of the corporation and its
shareholders including the possibility that these interests may be best
served by the continued independence of the corporation
If implemented the Proposal would cause Committee of the Board to pursue sale
of the Company on terms that would maximize share value for shareholders
Consistent with common usage Websters Dictionary defines pursue as to use
measures to obtain to prosecute continue or proceed in to proceed along with
view to some end or object Similarly if implemented the Proposal would result in the
engagement of an investment bank to seek sale or merger Again consistent with
common usage Websters Dictionary defines seek as to try to acquire or gain
Because the implementation of the Proposal would require the Committee to pursue
sale it would require the directors participating on the Committee to abdicate their
fiduciary responsibilities to consider other strategic alternatives that may be in the best
interests of the Company and its shareholders This directive conflicts with the
discretionary power to manage the business and affairs of the Company expressly
provided to directors under the Ohio General Corporation Law and the exercise of
fiduciary duties in manner consistent with Ohio General Corporation Law If the
Proposal were implemented as written directors serving on the appointed Committee
would be charged with pursuing sale and thus would be deprived of considering the
long-term interests of the Company and its shareholders and keeping the Company
independent as expressly permitted by O.R.C Section 1701.59F4 In this regard
by calling for pursuit of transaction the Proposal differs from the more common
language used in similar proposals calling for evaluation exploration or consideration of
transactions These other proposals provide directors with some flexibility to comply
with their fiduciary duties and exercise the lawful authority and discretion in determining
an appropriate course of action The Proposal if implemented in accordance with its
wording by pre-determining course of action for the Committee would not provide
such flexibility and would conflict with the duties and authority of directors under Ohio
law.7
The Proposal also requires the Committee to look only to maximizing share value
which is inconsistent with the duty of directors to consider the overall best interests of
the corporation as required by O.R.C Section 1701 .59B and would eliminate the
We acknowledge that because the Proposal is framed as recommendation rather than
mandate the entire Board would be able to exercise its fiduciary duties in determining whether
to implement the Proposal However regardless of that determination by the entire Board if the
Proposal was implemented as written the members of the appointed Committee would be
prevented from fully exercising their authority and complying with their duties under Ohio law
Page 19
directors ability to consider other relevant factors set forth in O.R.C Section
1701.59F We also note that pursuant to O.R.C Section 1701 .59D1a the
deferential standard of review in determining whether director has breached his or her
fiduciary duties i.e the business judgment rule explicitly continues to apply in changeof control or potential change of control situations including the determination to resist
change of control We are not aware of any Ohio court applying to an Ohio
corporation so-called Revlon duty to obtain the highest available value for
shareholders in change of control situation which applies in Delaware and certain
other states In fact at least one Ohio court has explicitly stated such duty does not
apply in rejecting claim that directors failed to maximize shareholder value Lewis
Celina Financial Corporation 101 Ohio App 3d 464475 Mercer Cty 1995 stating
appellants also assert that the appellees did not maximize shareholder value by
offering to sell company to see what others might pay The appellants contention
is unwarranted under Ohio law In corporate takeover the directors are not held to
duty to the shareholders to obtain like an auctioneer the highest price possible for their
shares of the corporation The law of the state of Delaware to that effect as
pronounced in Revlon case is not applicable in Ohio concurring opinion
in the Ohio Supreme Court case of Stepak Schey 51 Ohio St 3d 14 1990 As
such the directors of an Ohio corporation are not subject to duty to maximize share
value for shareholders and we believe that to subject Committee members to such
standard would be inconsistent with their fiduciary duties under Ohio law
The Staff has agreed in the past that shareholder proposals relating to sale
transactions that if implemented would result in directors taking action in violation of
their fiduciary duties or would otherwise impermissibly limit the authority and discretion
of directors are excludable pursuant to Rule 14a-8i2 See e.g Scotts Liquid Gold
/nc avail May 2013 on reconsideration and ICN Pharmaceuticals Inc avail Apr
2001 Consequently the Company seeks to exclude the Proposal on the grounds
that if implemented and the members of the appointed Committee were directed to
pursue sale of the Company on terms that will maximize share value it would
violate Ohio law Accordingly the Proposal is excludable from the Companys 2014
Proxy Materials under Rule 14a-8i2
VI ThProposal May Be Excluded Pursuant To Rule 14a-8i6 Because The
Company Lacks The Power Or Authority To Implement The Proposal
The Proposal would require the Board of Directors and management.. to form an
independent committee of the Board Pursuant to Ohio Revised Code Section
1701.63A the code of regulations of an Ohio corporation may provide for the
creation by the directors of.. committee of the directors emphasis addedManagement cannot form committees of the board of directors under the Ohio Revised
Code or the Companys Code of Regulations that authority is explicitly reserved for
the board of directors Therefore the formation of committee of the Board by
management either acting alone or together with the Board is not possible under Ohio
law Because the Proposal cannot be implemented in this manner it should be
excludable under Rule 14a-8i6
Page 20
CONCLUSION
Based upon the foregoing analysis we respectfufly request that the Staff concur that it
will take no action if the Company excludes the Proposal from its 2014 Proxy Materials
We would be happy to provide you with any additional information and answer any
questions that you may have regarding this subject You may contact me tel 216-
861-7090 e-mailshanselmanbakerIaw.com or John Harrington tel 216-861-6697
e-mail iharrinqtonbakerIaw.com Please send any correspondence regarding this
no-action request to my attention
Sincerely
Suzanne Hanselman
Enclosure
cc Scott Irwin Associated Estates Realty Corporation
EXHIBIT
JACKSON WALKER L.L.PDial
214661 6697 Direct Fax
jsonew.corn
December 2013
Corporate Secretary
Associated Estates Realty CorpAEC Parkway
Richmond Heights OH 44143
Dear Sir or Madam
We represent Westdale Construction Co Limited Wcstdale Pursuant to Rule 14a-8
promulgated under the Securities Exchange Act of 1934 as amended we are submitting proposal on
behalf of Westdale to be presented to the upcoming Annual Meeting of the Shareholders of Associated
Estates Realty Corp the Company and to be included in any proxy statement and proxy cards
distributed by the Company with regard thereto Our clients proposal is set forth below under the
heading Proposal
For your information and consistent with Rule 14a-8 Westdale has held more than $2000 of
market value of the Companys shares consistently for the preceding twelve months and will hold not less
than $2000 of market value of those shares through the date of the Companys 2014 Annual Meeting of
Shareholders Although Westdale is not the record holder of shares of the Companys Common Stock it
meets the eligibility requirements for submitting shareholder proposal pursuant to Rule l4a-8 in that it
has held such shares beneficially through its brokerage accounts for the requisite period Attached to this
letter is signed statement by Ronald Kimmel President of Westdale with respect to Westdales share
ownership with appropriate documentary evidence attached hereto as Exhibit
Our clients proposal for consideration at the Companys upcoming Annual Meeting of
Shareholders and supporting statement related thereto is set forth below
Shareholder Proposal
The Shareholders recommend that the Board of Directors and management act
expeditiously to form an independent committee of the Board to pursue sale of the
Company on terms that will maximize share value for shareholders including engaging
reputable investment bank to actively seek sale or merger ofihe Company
SupIortin2 Statement
Westdale Construction Co Limited Wesidale believes that the underlying value of
the Companys assets substantially exceeds the Companys market capitalization and
that the value of the Companys assets can be realized through process resulting in
sale or merger of the Company or of its assets
9856696v2901 Main Street Suite 6000 DalIae Texas 75202 214 9538000 fax 214 9S3-S22
Corporate Secretary
December 2013
Page
Westdale believes that several factors adversely affect the Companys market value and
prevent that value from fully reflecting its underlying asset value
With market capitalization of approximately $900 million and 2012 revenues of
approximately $175 million the Company is substantially smaller than the competitors
the Company identifies in its public presentations whose market capitalizations range
from approximately $2.3 billion to approximately $183 billion with 2012 revenues
ranging from approximately $335 million to $2.1 billion As result the Companys
general and administrative expenses run substantially higher than those same
competitors with general and administrative expenses for 2012 being reported as
approximately 9.7% of revenues as compared to range of 2.8% to 5.9% among its
competitors with an average of 4.4% Westdale believes that the Companys size
adversely affects its ability to compete with other public residential REITs
In January 2013 and October 2013 the Company completed the issuance of unsecured
senior notes of $150 million at 4.27% and $100 million at 4.65% respectively These
interest rates are significantly higher than the interest rates incurred by other public
residential REITs unsecured senior notes issued in 2013 Additionally the Company
recently issued approximately million shares for $17.25 per share effectively diluting
the Companys net asset value per share by approximately 4.2% Westdale believes that
the Companys financing activities have had and will continue to have an adverse effect
on the Companys market capitalization
The Companys current dividend yield exceeds all but one of the other public residential
REITs and the Companys stock price has underperformed the MSCI U.S REIT index
over the past three years returning 2.4% as compared to 27.7% for that index Westdale
believes this under Performance is reflective of the markets negative view of the
Companys current composition and growth strategy
That concludes our clients shareholder proposal and supporting statement
Should you have any questions concerning the matter set forth herein please do not hesitate to
contact the undersigned at our offices in Dallas
\ery trulytr/ 7---
IMS kie
WESTDALE CONSTRUCTION CO LIMITED
WRITTEN STATEMENT OF INTENT TO HOLD SECURITIESUNTIL
THE ANNUAL MEETING OF ASSOCIATED ESTATES REALTY CORP
December 2013
Ronald Kimel President of Westdaie Construction Co Limited Westdalecertifies on behalf of \Vestdale that
Westdale beneficially owns and has owned for at least year
minimum the Qualifying Amount of either $200 in market
value or ii 1% securities entitled to be voted at the 2014 Annual
Meeting of Shareholders the Annual Meeting of Associated
Estates Realty Corp an Ohio corporation Associated Estates as
demonstrated by the evidence attached hereto as Exhibit
Westdale will continue to hold the Qualifying Amount of securities
through the Annual Meeting of Associated Estates
Ron Kimel its President
9844535v.2
Exhibit
Evidence of Share Ownership
Sec Attached
984 535v.2
Memheu of fe hlcsimeLt industry Regiolaiory Organization of Canada
iaricipoing gization of the loronrc Stock Lachange
tmber of LIP
100 WeIlngtOn Street
5$ 2701
Toronto Ontar
Canada MOK 52
43.6037301
416.6030608
Quantity Cornrn4sicn Pr cc P4cC Funda Net AmoJ2
Westdrde Construction Co Limted
35 L.tsrn3 Rd
Noth york on 1438 2T3
Referonce
VEAl
Stock ABC
EfiectYc 1314 14dn Oae7ocl
07/32/2012 04/172032 01/12/2012 8th ATEO 25000
05/ 12/2012 30/11/2012 30/11/5012 BUY O3ATED 20000 ii
27/11/2012 21/11/2012 21/11/2012 BOY OOSATED 10000 USC
13/11/2012 07/11/2012 07/11/2012 BUY Al 000
OSjlV2002 31/10/2012 3111012012 BUY SOOt TED 7000 UD01/11/202 01/11/2012 24/31/2013 WHTXO2 dATED 000
02/11/2012 01/1112012 24/011203 DOt AS 0CM L17 31000 US
31/1012012 26/10/2012 26/10/2012 BUY 1eTD 73000
26/10/2012 22110/2012 23/10/2012 0115 TED 80000
3/10/2012 11/10/2012 23/01/2013 OtLOUY OdATED -40000
16110/2012 11/10/2012 23/01/2013 BUY 00
16/10/2012 11110/2012 11/10/2012 BUY S0 4C001 UD15/10/2012 11/10/7032 73/01/2013 BUY BaTED 31 an
Transferred out to 6140 DTC 5OJMA 0MB Memorandum M-07-1
07/12/202 07/1112012 01/1212013 lthOUl 1000
Pfeaso of us Snow of any questions or corICOrns
NL/ftt Cornftic
Excuiise Assatant
Page 27 redacted for the following reason
FISMA 0MB Memorandum M-07-l6
Page 28 redacted for the following reason
FISMA 0MB Memorandum M-07-16
Page 29 redacted for the following reason
FISMA 0MB Memorandum M-07-16
Page 30 redacted for the following reaaon
FISMA 0MB Memorandum M-07-16
Page 31 redacted for the following reason
FISMA 0MB Memorandum M-07-16
EXHIBIT
BakerHostetler BakerHostetter
PNC Center
1900 Eist 9th Street Suite 3200
December 18 2013Cleveland OH 44114-3482
216.62 .0200
216696.0740
VIA E-MAIL AND FEDERAL EXPRESS wwbakocIaw.com
Suzanne Hanselman
Jeffrey Sone direct dial 216.861.7090
[email protected] Walker L.L.P
901 Main Street Suite 6000
Dallas Texas 75202
Re Westdale Construction Co Limited
We are writing on behalf of our client Associated Estates Realty Corporation the Issuer On
December 2013 the Issuer received proposal dated December 2013 the Proposal that you
submitted on behalf of your client Westdale Construction Co Ltd the Proponent for inclusion in the
Issuers proxy statement for its 2014 Annual Meeting of Shareholders the 2014 Meeting The Proposal
contains certain procedural deficiencies which Securities and Exchange Commission SEC regulations
require us to bring to your attention Unless the Proponent timely submits documents to cure these
deficiencies to fully comply with the procedural requirements of Rule 14a-8 under the Securities Exchange Act
of 1934 we will take the position that we may exclude the Proposal from the proxy statement for the 2014
Meeting and we will seek such determination from the SEC under Rule 14a-8b
Rule 14a-8b requires any shareholder submitting proposal to have continuously held at least
$2000 in market value or 1% of the issuers securities entitled to be voted on the proposal for at least one
year by and including the date the shareholder submits the proposal and include verification of such
ownership with the proposal Your submission includes statement that the Proponent held shares for the
one year period concluding on December 2013 but the date of the Proposal is December 2013 The
verification of ownership provided in Exhibit is also dated December 2013 There is gap between the
date of verification and the Proposal date which is deficiency in proving continued ownership for the
requisite one-year period as required by Rule 14a8b2 and further explained in SEC Staff Legal Bulletin
No 14F published October 18 2011 SLB 14F In addition as described in SLB 14F to confirm
continuous ownership for the requisite one-year period the broker providing the verification should
include the following statement As of 2013 Westdale Construction Co Limited held and
has held continuously for at least one year of securities of Associated Estates Realty
Corporation Common shares without par value Your client should submit new written statement and
proof of ownership letter verifying continuous ownership of the requisite amount of securities for the one-
year period preceding and including December 2013 the date of submission and submit both within
14 days from receipt of this notice to cure these deficiencies
Notwithstanding the timely correction of the aforementioned deficiencies the Issuer reserves the right to
seek no-action request from the SEC to exclude the Proposal on one or more substantive grounds
Please direct any subsequent submission or other correspondence regarding the Proposal to me at
the mailing address e-mail address or both indicated above
Sincerely
Suzanne Hanselman
EXHIBIT
JACKSON WALKER L.L.P Jeffrey Sone
__________214 953-6107 Direct Iial
214 661-6697 Direct FaxATTORNEYS COUNSELORS jSOfleW.con1
December 2013
Suzanne Hanselman
Baker Hostetler LLP
PNC Center
1900 East 9th Street Suite 3200
Cleveland OH 44114-3482
Via electronic mail to [email protected]
Dear Ms Hanselman
We are responding to your letter dated December 18 2013 the Response Letter regarding the
shareholder proposal the Proposal submitted by our client Westdale Construction Co Limited to
Associated Estates Realty Corporation the Issuer on December 2013 We have reviewed the
Response Letter and the SEC Staff Legal Bulletin No l4F the Staff Bulletin you referenced in the
Response Letter Our client has beneficially owned at least 40000 shares of the Issuer since October 162012 the Shares In accordance with your request for our client to cure what you believed to be
certain procedural deficiencies in the Proposal the following attachments are included with this letter
Verification Letter from Partners who served as introducing broker to our client in their
acquisition of the Shares the Introducing Broker StatementVerification Letter from National Bank Securities who held the Shares of record on behalf of
our client from the date of their acquisition until December 2012 the First RegisteredHolder StatementS
Verification Letter from BMO Capital Markets who held the Shares of record on behalf of
our client from December 2012 through December 5th 2013 and continues to hold them as
of the date of this letter the Second Registered Holder Statement and together with the
Introducing Broker Statement and the First Registered Holder Statement the Broker
Statements
We believe that the Broker Statements demonstrate that consistent with Rule 14a-8 and Staff
Bulletin our client has beneficially held the Shares which shares have market value of over $2000continuously throughout the twelve months preceding December 5th 2013 Please let us know as
promptly as possible if you disagree
901 Main Street Suite 6000 Dallas Texas 75202 214 953-6000 fax 214 953-5822
www.jw.com Austin Datlas Fort Worth Houston San Angelo San Antonio Member of GLOBALAW
Corporate Secretary
December 31 2013
Page
Should you have any questions concerning our supplemental verification of ownership please do
not hesitate to contact the undersigned at our offices in Dallas
MS rph
992547v.2
100 Wellington Street West
Suite 2201
Toronto Ontario
Canada M5K 1K2
lvi P4k 416 803 7381
416.603.8608
www.mpartners.ca
December 30 2013
Corporate Secretary
Associated Estates Realty Corp
do Suzanne Hanselman
Baker Hostetler LLP
PNC Center
1900 East 9th Street Suite 3200
Cleveland OH 44114-3482
Dear Ms Hanselman
We have received request from our customer Westdale Construction Co Limited Westdale to confirm their
beneficial ownership of certain shares We are an introducing broker and as such we do not holdany shares of record
Shares of our customers are held ofrecord through various record holders including National Bank Correspondent
Network NBCN On October 16 2012 the Acquisition Date Westdale acquired beneficial ownership of
40000 shares of Associated Estates Realty Corporations Common Shares the Shares held of record by NBCNand continuously held such beneficial ownership of the Shares through NBCN until December 2012 the Transfer
Date on which date registered ownership of the shares was transferred to BMO Capital Markets from NBCN but
remained beneficially owned by Westdale We have included statement from NBCN verifing that they held the
Shares of record during period from the Acquisition Date through the Transfer Date
Should you have any questions concerning our verification of Westdales ownership of the Shares please do not
hesitate to contact the undersigned
Very truly yours
/7 /1Brianirquhart
Chief Financial icer
Member of the Investment Industry Regulatory Organization of Canada
Participating organization of the Toronto Stock Exchange
Member of CIPF
NBCN
December 312013
Corporate Secretary
Associated Estates Realty Corp
do Suzanne Hanselman
Baker Hostetier LLP
PNC Center
1900 East 9th Street Suite 3200
Cleveland OH 441 14-3482
Dear Ms Hanselman
This Is to confirm that on October 16 2012 40000 shares of Associated Estates Realty
Corporations Common Shares were bought into the Westdale Construction Co Ltd Partners account
FISMA 0MB Memorandum M-07-16
further confirm that these shares were held in the account untIl December 2012 on which
date the shares were transferred out Of thi ti1B Memoran%4i.16
Please let me know if you need further information on these shares
Sincerely
cczZLeona Lai CPA CACFA
NBCN Controller
416 542-2382
NBCN Inc
Suite 1900- P.O Box 19
250 Yonge Street Tororto Ontarto M58 2L7
416 542-220C Fax 46 642-2362
WebsjtO wwwnbcn.ca -mafl [email protected]
December 30 2013
Corporate Secretary
Associated Estates Realty Corpdo Suzanne Hanselman
Baker Hostetler LLPPNC Center
1900 East 91h Street Suite 3200
Cleveland OH 441 14-3482
Dear Ms Hanselman
BMO Capital Markets BMO became the registered owner of 40000 shares of
Associated Estates Realty Corporations Common Shares the Shares on December 2012
the Transfer Date when the Shares were transferred to BMO by National Bank Securities
NBCM at the behest of our customer Westdale Construction Co Limited Westd ale as
broker to broker transfer between accounts held by Westdale at NBCM and BMO respectively
The Shares have been continuously beneficially owned by Westdale from the Transfer Date until
December 5th 2013 and continue to be owned by Westdale as of the date of this letter
Should you have any questions concerning our verification of Westdales ownership of
the Shares please do not hesitate to contact the undersigned
Very truly yours
BMO Capital Markets
Adam Molnar
Prime Brokerage Services
Dec 30 2013
9918185v.2
EXHIBIT
David Gorden Managing Director The following presentation provides detalled anaysis of the Equity RET market
617 385-6220 induding current trading tota return everage coverage and vauation statistics
dgordenkeycorn
This presentation anayzes 131 Equity RETs within the following 13 sectors
Mark Koster Managing Director
770 510-2150 Heath Care 12 Student Housing
mkosterkeycom Office 17 Manufactured Housing
Data Center Muftifamily 13John Horrigan Managing Director ndustria Sf Storage
216 689-4615 Office industrial Lodging 17jhorrigankeycorn Shopping Center 20 Tripe Net Specialty 18
Malls
Michael Hawkins Managing Director
212 476-7425 ndustry Comps
[email protected] Section presents series of 50 ranking tabes comprised of each of the 131
publidy traded Equity RETs pus the median vaues for each of the 13
Russ Hancock Director sectors listed above
617 385-6230
[email protected] Sector Comps
Section provides series of tabes which are broken by the 13 sectors
listed above
or ntY td 81% 69 368% 89/ 91% 03/fl 49% 614%
Ma Cap 88 2164 004 $188 60 $1 209 46 10 $4 49 $1
Aggrgat 808 61 100 78 $4448 968 08 518 $3 168
at rp Vitae 344 $4 470 20 044 602 35 $98 1723 10 517 24 $431
Agg qO $0688 13698 $1738 4248 $3 878 $18688 908 $93 $t148 $b7 $8 88
ek cO4 Reta 043% 004 02 09 68 47% 42%
Math Tot Pt tarn 107 00% 11 67% 68/fl 57 94/ 48%
LTM Pt tao 0% 16097 13 19 660% 47/ 18 1% 1068% 14/ 103
Ye riot eta 4% 8/ 86 769% 563 64/ 90 6/ 1502/ 4% 613 90 67/ l9/
39 ar at Pt tao 85% 339 067 3204% 78 38 9% 99 10 Oh 861% 4149
Ye atat Ret rn 787% 36 969 449% 91 90 33% 679 08 8% 06 99 6411% 2824% 764 90 76099
Year Tat Retara 938% 3646 90 078 90 100 00% 64 679 273 49/a 000 899 61% 507% 199 90 76% 79
EOtTDA Ptd 630 83 75a 69o 51 46 82a 46x 30a 300
DebtPtdt 30 1% 09 314 00/C 1109 44149 46109 4098/ 28% 3564% 47 90 069 8%
P1 F70 141 t47a 740 76 1292 14120 16 1464a 0902 94
P1 14F60 0a 1074 161o 12 15 Oh 13 1256a 1449a 665 1187 12
P/i 03- 32a 1991 1840 1986a 67a 162 7a 1688 t494a
/146660 419 60 100 190 17 181 14 ha 1542 17 00 1498 190
03 FOP yaat 041% 9/ 6759 674 607/ 641% 90 800/ 8049 9/ 667/ 502% 89
130 OP yoat 840% 824/ 787/ 81 64 0/ 7% 870/ 2% 717% 615% 838%
Letrage Coverage
20
18
12
LiIS to tOO to to totS 0/ to 35 353 to 07 00% to 05% 5/ 51111 tt 0/ to 100 to 2101 to 285 to 415
00 60% 40 16 280 435
Dv/7
69/7R c/ kL/7170 en /7x /774 5/
PLY Hot 8% St 5.4 00 Cotoot P0 Ppt Sr 4a 45 94/7
tCot od 000 73 0000 47 62 Med Prop rt17 18% 11 0% 38 /7
CororoooWealtt REtt 47 t6 135 63 00 ao 4944 318% SO Horn Ppt
atra Hotet 4166% 00 64 Pobhc torag 3.840 845 2$% HealthS P631 18%
Parkw iy Ppt tot 1788% 44 igarteo 11/2430 8/ I% Ao SoOty 10 80/ 29
CS Ph Lodgotg 96% 14 66 HOP CTR SR 2330 84 80$- 28 COL oc Pyt 12/ 400%
bblobt Hot 16 Sr 6/ Porno Re 13 Corp 223% 7% 94 OSoicS ty 60 Sr %/
DiarnordRook ptty 33% Sr 68 Hod oo Pr 85% 2481 38 128 06 Ty 17 Sr
loLtod Re It 4% 8% 89 DoPoot Fabro Tech 228% 402% 129 Pp IS 33 Sr0/74
10 Oot tSrare 2405% 70 711 DAtA NI 6CTOR 281 402% /7 53% 130 doc Ito ReaS It 71 Sr 54 /7
It RU Lolqorg Trod 71 53117 atty Cop 72% 451% /76 131 Ra oilier to 1077% 1000 933
Ho Hot ott 4061 327% 44./ tRIP ECTOR 0001 132 HCP to -19 57 376%
11 abr Sb Ca 203 622/ /7 73 Oo Liberty Ppt 07 98/ 133 Ut oerna Oh 2085/ 449
14 So SIR ally 262 0% Wrothrop Reatty 00/ 99/ 759 134 obroor lit rs 1880% 300 /7 8%
hesa he Sod 2112/ 4154J/75 94 Pr Ii 7% 50 5/ 13 rn Cr 23 28% 474% 94 75/7
15 00 1305 SlUR 4557 2479/7 9% 76 err It Co 01 3949 44 /7 35 STDN HODS CIOR -23 2510 414% 19 /7
Soo tort Hot 11001 124 09 Sr j/ 07% 7/ OttSo 06 46/ 94%/7 Rob rttty
2306% 00//7 /7
La ale Hotel 21 54/ 437/ /7 /7 /7 70 It5th too 076% 536% 53 38 Digit Rr ty It 27 615 16% /7 4747
to 000si Properi 23 35% 221% /7 139 Wh rR IT 30 92% S9.Sr
Cat lot 88 too 101 ro 17 Sr 607/7
40 Arn ri an ot 05 3018% 253% /7 /7
21 oi OS or 1826 /7t Ok 81 Prologi to 6% 04% /7 6/7s 41 Sopert 7010 000% 43748 /7
Hopit otity Ppt 19410 80 Sr /7 53 rat rowtF 111% 9/7 14 Col loot 000% NA /74 /7/7
AsSlor ty to 442 /7 04% Arneocar 63% Pply 294% 41 /7 43 CS rnber SIP 000% NA
24 It7Trio 18 56/ 0% /7 84 orogtoo Realty 230% Sr /7 345 144 Sprot yy 000/ NA A9
SLOt Re II 20 2S 2979/7/7 47 Doll Lrnrrt -s 004S 10/ /7 47Kit oIly Op Yr 17 3% 479 /7/7/ /7 86 ICE SECtOR -004% 10/ /7
34 sodyw ally 9/ i4 95 e4 87 ArnREIT bc -2 04%/7
26 Co Si oIly 1638% 19/ j9 /789 1-rattklro St PpIs 292% 46
/75
29 PSBo Par Ii 1761% /7 88 AcadaRealtyTr 100% 341%
TA Irdo trial l347/7 447 /7 90 ALTHCARESECIOR 36% /77 /7
ott slg 15 /7 45 0/4349 91 OUR 00 81/ 378/ 17
Op orIon ty 14 54% 4% t/7 92 Whiteotorre RElY 84% 8O/ /7 34
Ic no ally 1464% I/7 5769 Regeocy Cci em d/ 3% 01 343d rrli Ho pitality 11 40 710 514 94 Ppto 79% 49%
5/774
IN RIAU CIOR 66/ 42/ 75 95 DDR Co 324/ /7/7
Amrr
to 12 3/ 17s6 9434/7 96 Proper y7 ld/ 322%
ot ricorn Il Sr 97tty
81% /7
aol Ccitt los 11 40/ 5S 34 99 Hoo tog PpI 98% 90%
38 Vornado ally 1088% 391 dl iddl 5% 807%/744 /7/7
40 Ag Realty orp 32% 339 /7579100 Sib rIp Ppty Tru 36% 04%
41 Ryrn Hoopil lily T4/7/7/74 101 So too Properli 14 7/7 74/7/7
42 DCI ho trial 996S Sr t./7 102 So rnit Hotel Ppts 26/ 9% lID to 81% /8 97
43 EPR Plop ri 661% 6/7/7
103 orp 083c PpI Sr 43 Sr /7 4/7/7 Property Yr 14% 109%
44 Highwood PpI to 13% Sr 51 104 woo op75 93% Airorco 42b
IND ClO 4/ 479 10 Airnco Sr 432% MAA 6191 1446 DoS Re
Ily rp 9979475/7 106 oMedIly
It 626/ 472% t5oily ResdI 7% 0% 52
47 Suo Cornrnooill 689% 10% /7 Potorna Sr 7% 53 Po Pptc los 945% 0% 838
48 OobeSor rI 940 31//7
109 MAA 819 405/ 7474 10 31 rne In 4% 414% 841/
43 on yoaro REIT 780% 2% 34 10 MDLII AMI UIOR 619/ 405% 3.049 Ao lootS yl 1280/ 99/ 90
55 sI pip In 786% 408/ 147 34 110 ReIIy 10 orne -7.16 488%4/7
rod Ppty Ti 1661 70/
Retail Prop Pie 7757T9095$5345 111 UMH PpI In 881% 649%/7/7 /7/7 13 Roberts Realty 306% 0000 10
Equity Inc 681% 8% l175 /7 /7/7 MAUL Cl -596% 259 /7
BR Proyerlieo Itt 783% 41% %41sO 113 lair er aclOry 837% 2% 43 747
Cot Pp urn 387% 31 %/ 114 Pi 40001 Olli 849 408% 9%
Eqty Silolyl
768% 299 153358% 115 Al odri -922 /40//7 44 74
MFI SI JUSIN CI OIrT33675 3787j 035 116 So rIo -10 10/ 14/ 43
US TOR5 CIOR 71 31 Sr /7932 117 EqotyR dl -847 320/ .21
Poll Ich orp 62% 33 743357 118 inglori ROT 10 67% 33% /7
Kil oy Rca ly 93 96% 119 Mon rnolh RE 001 12 26 540/
Iouo TonS 120 lIS ally 11 25/ 31 -3544
cesRMS 24/SP 500 32 39/
USIA 29 55
OveieW7MuIttamitORE Prooetlcro Inc 7.63% 41% II 55
bnoeslono RE 10001 72% 02% 350/
Sour0e Public t5ops Capital 353 OWL Fiecrocact
Cole Aealysis based on reported consolidated Itroencoal slatereeets
14
30-25
20
to
00% to 0% 0% to 00 100% to 200% to 300% to 350% to 45 OTto 400 to 530% to 620% to 59 to 009 to
20 09 30 0% 35 4502 40 0% 53 63 68 09 75 5% 80
osIoTHE Hot 181 24 II 30 St Highwood pt too 104 134 Piedoioo Yr I/ 9/5 ta 09
01 St te 14 49o ctpl/tND CTOR 13 6/ 1840% 04% 122 Al od aR 13 t6/ 074% 957
Cot IS itty 136 00%aO%M 63 It rtetl 2350% 04 hiogtoo REt 245 1300%
to 0607% 3311% 13 mg oRtty
1540% 16 95 tom 86 12149 95
Fr todt Rertty
09 0% 421% N3SC II 1245/ 18 1% 93 ampo Cr 32889 63%
ooran too 04 20029 66 AL ARL CT 18 itT Corp lb Pp 222 It
EEL TON CIOR 802/ 054 95 Uomvet th 966% 30/ 10913 17 Ma otty 03 01 102%
Cob ti 01 5/ 15/110 9/ 413%1 bd on too lIt itirot 2972% 040 lot ttyR oyrotp ut 1% 00%Hot 864% 000 b9 Motiotouth loot 6942 9$7% Rob 01 Neatly 4% It 00%
ItS 07/ 31 94494 70 PP Prop tIm 829% 19 /7/3130 Sop 01 OS 70 000%
ml pportuoty 48 4% 35/ 947$913/3 71 TR 12510/ 1534% 131 atth Ito NA 1A/3/37/
moo top 4y 294% 1303% /3 72 No too Ptope4i lb 1090 Prologi 00 NA NA /3
Dot Heattht 32 Ott 311 /3 73 Hotet lb 89 580/0 30 t3 tAll lodo to NA NA
14 lob Stor 48419 14 9902 %/3 74 Otty tolome Co 5% 17 4% AmR IT to NA NA
Pebblebr000 83 108 94 /3 Do ont Fabro lt 1617% 1016% 2%o7/ Am ot Pt NA NA 41 94lb Hod or Paoiic 1341/ DA ENS 1017/ lOlbN 136 Wh IT NA NA 9N
Ott Commoooi 2801% 2859/ imihet Realty Tr 11 41% 14 27 /3 tart Prop to NA NA
10 Ea up pt 10 3609% 1070/6139/9
78 do lion Realty 1351% 1201% %/3 128 RU Lodqotg Pm NA NA 7/94 7/49
IS CS Sod mrrg344 2093% 79 Liberty Ppty Trool 011% 3906% 99 330 moot Hotel pt NA NA $41
NDU tRIAL TOR 35 0% 1040/711
$18% 00 Konto Realty Corp 940% 550/ 99 140 Amen RltyPpty NA NA $3949
21 5104010 It 34279 102 Veot too 1400/ 141 Ito oo NEI NA NA 7/1/3 49Leoingt Realt 043% 24 00/ /3 Reg yC 01 tO 1351% 1404% 14 Lot toot NA NA 41
23 00091 mm to 40 30% 12 /3 03 Sr Hou mg Pp 21 07% 71 14 orb St P1 NA NA
Kit oy Ity3755% 130 99 84 dotoo Comm 712% 37 44 Spit Realty NA NA
Acadia ReIt0
36 133 14 Pot 10 I0/ IC 86% 9977
no 10 rty Ppl 20 54% 2964%77 999 9/3
Ryman 110 pit lit 1625% 3339/734
/3 87 VoroadoIty
55 67% 3%28 oosyloaoia REIT 30.03% 1801% 3r49 08 DDR orp OO/ 411 %949
29 PSOu rk to 3715% 1177% 440p 7/
alttty
066% 00% 41
operli lot b.33% 2248% 73/3
90 Ppt 263% 1500% 9931 Rammo 00 2643% 21 49 92 00 ply 11 /331 99
32 lilor pIty lr 1420% 61 39 /3 92 love rot Ito739
73
33 NaIl 11th loot 2453% 22199 /344533c1% 93 Cot dgiog 000
Ho pit lily Ppt 17 32% 27 929/7/
493 94 ed Re117
040t1 16 9/7/
5%
Poll II omp 233 16 71% 9994 9/37/ Whit too IT 966% 90% 9i 04/31
rilaod Re otat IS 56 2533/ 97/44 /9 Anal oOay 10 50 10000/ 49 19937 at omtlr 2965% 14129 974 97 MUL IPAMILY ICR 027% 1478/ 32
36 re Realty 36949 540% 3/34 98 Ho tetr Ott 879 6147/t3
39 deta Rca 3013% 120 09 ommooW Ith IT 802% 2349%
40 Nm odywin Ity 54% 20 1%39049341
105 HCP to 20%
41 quity Doe In 17 61% 5/3 39499/3 10 UMH p1 lot 65 8% 93 73
42 Plum Crc Toobe ION 16 06/0 102 Got p1 loom Yr 24% 20 000 /30%
43 qty LmIoStyl 55% 10 39 113 5473OF Cl 204% 10 00% 94 99 ply It 7% 11 99% 17 36%
44 FIOU IN lOll 801 11 94% 9c1009 04 Ame coo ompo 42% 14% %j %73 100 010 Ito 0/ 1645
45ti
53% 97 lOS ION IOU El OR 42% 3114% Au lordS 1110 1000%
45 Medical Prop Ii 12 0/ 26969/ 91 9% 100 Ut dl 041 514% 41 094 UDR In 07 11 000 1020%
47 Kite 10 Or 44/o 1017 10 ittMed Realty It 284% 1467414 j%% Home p1 lot 1354% 10 17
48 Dubtly Comp 20 71/ 107 544%9 tOO 01 Cent Inc 080 3033 1/313 49 10 golly Renal 01 73/ osi
49 MALL CTOR 86 1292% 97 109 Lxcellrlnc 587 1616 /0 94 11 Aim 027 856ChatS Lodg mm 18 20 00/
7/13% 110 LI lot 072/ 1185% III MAO 43 2/
IN 09% 2171% III pIn bc 337% 13 4% 333341633 13 Rob ml ReIty
d/ 000 4%
Pop Ste In 77% 124 49I%99$ Ii Digit Really Sr 470% 34 /32
eo rope ly Yr 12 4O9/7/390
90 II Eqomly dl 15% 9%33
54 05mm 26 62 Il 14 At 021% 059 13 /3
or loty 10 1094//3 997 11 MAth 433 1252% 99/95
AdS Re 117 Corp 1081 236 /3 11 Ito Really 28 077%
a7 NaIl tail PpI 1445% 3869 /3 34 117 Di omood 000 Hoylty 370% 10/3
9558 FRIPLF tOR 1445% 1908% 99 118 Wotthmop al Tr 1360 36 29/59 yoot toO 2024 1304/ /334 19 Frar Ito Ppl 16.14% 1694% 99613p
60 P0 P1 10 2455% 884 4% mS Ho pit lily1561 12537 1039
cesRMS 31 17
SP500 56820
DJIA Sd 91
SIRE Plolerlien lire 21 17% 12 42 38 ION
Eooeo Property It 25 64% 12 40 38.05%
P00 Ppto Inc 24 SON 04% 33 44%
Source Publmc FIlings CapItOl IQ loNE Freaooial
Note Aoalysio based on repoSed cansolmdated financial slatemerrts
5l
600 to 1000%1511
16
40
30
3023
IiIL
to
00 0/ 900% to 850%to 90 to t05.0% to itO 0/ to 1300% to 1375% to 1425% to 1525% to t62 to 177 54 to 1925% to 207.5% to 2225/150% 9511/ 103% t150% t300Y tI/S t425% t525% t625/ t775 t925 2075 2221
oeoa oowth 14 24 141/ St otty tocom Coop 61 0/ St 50/C Vt Ppt to NA NA
DoPoo 78 to 10917 1/ adotty
7400% 74 Io 4i Hod on oIl NA NA 1/
hforo ptty 000% 515 10% 8% 63 Eqooy 7394% 3887% 9E4 123 Poedmont oc 11 NA NA
ATA NT ION 62% 85621/ 64 Inc 6933% 393 Jo neSot Reatty NA NA
Stoatego 46 50% 000 sQ4 65 Pottat to Coop 6948% 47 JQ OW 01090 no NA NA
SotH PLY Not 3698 66 Ea tGroop Ppto Inc 6282% 4501% IA In oo trial NA
Ryooo oo Hocpot0ototy 542% tlO A1 67 NDU 1/PAL SECIOR 62.82% 011/ i40 17 ro Retty
NA NA
ot Spao otg 308 24% 7718% 68 MAA 63.46% 4429% 94 A000R It to NA NA
on tommun ooes 204 57% 180.76/o Education alt/in 68.97% 3856% 29 Am rocao To NA NA
10 tom to oR alt Tt 33 10% 141 70 Oooyl Emoneg lot 7833% 2849/0 ocet to nc NA NA //It Macooroch Co 224 28 12014% 54o4 S1DNT US SECTOR 6312% 7771 Wh REII NA NA 41
Fet Lodgong 34 48/ 000/41
Langen Factory 70.23% 2982/0 4Obb Retool Proponoto NA
13 DON Cop 2149 10 1ti 73 Lobenty Ppy lmst 4836% St Whote ton REtI NA
14 Cob no 820/ 50 08 0t 74 PS Boo Parks nc 7112% 888% 41i O9801 34 Compo tr NA NA 44141
CE1L Oc 176 1% 118 18% OF ItNO SECLOR 836% 51 64% 41ft0iChatS no Loot NA NA
IS SL Or nR alty 5668 3111% I04 76 BooMed Reatty To 5461 4393% 1i t3 CS peake dg 00 IA NA
17 MALL TOP 181 14 77 HEALIHCARE SECtOR 50 71 4467% 13 bbteb ook Hot NA NA
18 arep too 161 94/fl 97 78 Am roan Ca000poo 728 3688% 41 Rt Lodgong Ton NA NA
000 Lob rty Ppt 1269 41 79 rat Realty 633 Jo 30 7% 41 138 0000mo Hot pt NA NA 44Peoon to nia IT 7/ 97 2% E%41 80 Monmooth RE toot 29 86/0 85% l4 140 Am rI at St NA NA
on Door noon 11 /o 9644% 81 Dogotal Realty Tn 49 3% 98/ i40t41 41 tect to urn II NA NA 41414141
Gtad ton omon 1114 126 nl 82 Ret ot Oppootonoty 08 439%04144
14 Cote not NA NA4114 414
mon Property 186 39% 51 Rot op Reatty 997/o 245 43 Chamb St Ppt NA 44
ELF TOR SECIO 4619% 41 41 i4 84 tndo too To 4091% 4287/41
144pilot
ReIty
NA NA
Po 45 15441
Doke Reaty Co 85 14 19 4426 La cIte Hotet l798/ 7411/ 86 Von do atty Tn 4713 33 4%
27 aobm nto 84% 87 Hon ong Pt 51 27n41
28 Lenongton Realty t04 20% 97790/ 44% 88 on atty 3/0 41 88%41 414
29 Medical Propert en 9366% 1083 1341 41104L 89 Ho towocod Ppt too 3220% 42841/
30 L000tNG SECTOR 168.04% 247 Jo %e 90 HCP nc 3079% 41 2%
31 Ftoot ttotetsResort 156801/ 82%441
884 Potono 25.85% 4611% 4/
32 Nat Heatlto tnoro 104 52% 70441
4441 Horooe pt Inc 3207% 1%
33 Onoega Healttoc are 8660% 881% 488 48e44/ Hen tb re RElt 2694% 41 78 41 11
34 CommonWealth REt 72.92% 8941 94 0000 5th 3/ 4674% 14 44t27 81% 34227 %i4 95 Ptom Co bonbon 388/0 3278% 14
36 btospotaloty Ppts 81 78% 96 qooty On In 78% 3871% 4437 Hemha Hospitality 8567% 70 0l/ 44 14441 97 St-tOP CIR SEC1OR 2181/0 40.86/ /41
10441
38 Aomco 124 1/ 31 99 Kite Realty Grp Tn 18 17/0 4568%
39 Raynno nbc 101441/ 47300/ $41 99 Un tadlktoddle 1680/ 3941/
40 Brandywi Ity65 180 not Centers Inc 20 4% 25 4441
nop rI In 44 41414441 41 tO Wonthrop ReaIp T414% 3971%
42 NatI Relail pt 76 63 16 41%4k 102 Kim Realty Cono 04/ 3080% 44
ERR Pop rtoe 64 7/ /1 30% 5441
103 OF TOP 638% 101 Jo 4884 to aooa0000n oy Inc 01tO/o 0048% 0849
44 RI LE CIOR 649 71 0% o8 407%/ 104 nkw Ppt bc 717% 11%4141
Es en oopertp mm 899 9/1/
For 11041Ity
113% 9%4141 15415 10 rocy nt 086% 94 144 md ply 81 9% 0/
186 Ale andno RE 544% 1840 54 41 golly dl 3667/0 I/
An ion ay In 95 16% 3948%411 04 187 He 110 Really 924% 32 /o 41 s4 UDR 39 108 68
LII Pon1n nbc In 1/0 6000 441440 108 Mack Ii ally 1233% 8/ 10 MA0O 346% 4429% 1077
Ag cc ally Corp 6007/ 2611 444 41 109 GeOy ally Corp 1277% 308 1414 0/5 11 lom p1 Inc 74
Sovo If Slq 83/ 5011% 41 41b4 110 Robe ly lt91 000% 4%bI lOfo41 Rob ally 16910/ 0000/ 90%
UMH In 4/ 41 11 loolaood Real tale 1898% 33 SO/o 441 %4 13 Inn ton 1989 3352 1373MW 0000 IN SECTOR 8889 40/1% 54 444 11 bnnesborn RE 1989% 3362 s4
loop 4y 86 98% 39 73% 48 54 113 Washington IT 17 46 28 18 41% 88 14Cunod nPpylo 8149/0 8/ 41 /5 114 CedarRe 11/ nO 11 9% 07%
MULIOI AMILY C1OR 79% 4928%41
07 11 Fr oklon SI Ppt 189800 841%0%Public age 8933% 3/o
415441 14541 116 np OSS Ppt 2123/
010 In Ho loot 48% 8/41 117 no in Ron on 631/ 18 8% 414
58 nla inc 7083% 44 81 41141 444141118 up 05% 00O/ 0044
qly Lot Style 8899% 360/ 4. 41 119 allhc Tro NA NA s411NA
60 Bo tool Poop nIl 8249% 31 34/ ii 0141 bra Healtlo NA NA
cesRMS lIk/3/
SP 500 12019DJIA 1167/0
PoslPplslnc b/4l2o 441 21927%
Aimco 124 33% 31 2903 tS62%
BRE Propentoes tooc 95 53% 44 96% 140 49/i00
Source Pubtoc Fotongs CapItal IQ SNL Foeancot
Note Analysis based on reported coesotodated finaecoat slateoooents
18
lB
l2f
50% to 30 to 550% to 800% 1050% to 3300% to 1550% to 1800% to 2050% to 2300% to 255 to 2800% to 305 to 330
00 5505 8007 1050% 1300 15505 1800% 2050% 2300% 2550% 2800% 1050% 3301
meq to lIlt 218 40% 32488 31 SI ym oFlo p4 Sty 97% 3998S 121 pportuotly NA NA
oblt 10 248 90% 1259 31 flIer 18 19S 818 ReNt porlt NA NA
ogm ato 1489% 150 53% 44 83 MALL COON 33% 751 431 Whtte too RET NA NA
Stmoo Prop 015 83 470/ 84 Wtothrop 115Tr 231% /4700/ 44$lr 324 Am oo or pu NA NA $r
Toubotao 01 210 29% 139 08%31
85 orp SOft Ppt 81 5868%431W $4 ttrpo NA NA 1454 43
II aIlS loor 12 48/ 114/ 65 05 IC CIOR 88/ 4431 duuoltoo altyl NA NA 444 44LT Proporhe lot 140 095 202 8/ Atm 90% 9479%
3131 327 000 cc tq NA NA 31
tttat too 160 16% 15850S 451 7%1 68 too Cr Iro 1333 820 128 Cub Sm NA NA
69 tog rIco ally 726% 6816% Q44 Chotham Lodgtrtg NA NA 44 44IS ELF ON C1OR 161 16% 12 44 70 Ltttett Tmot 12 /294% CS ohS Lod NA NA NA45
13 10 101 02% 4% 71 000IN CTOR 1909% 7854% Ct oroodRork ply NA NA 444 4/4
32 ral ally 164 36% 108 49% 431 .3 Al odro 9% 85% 31 332 bbl brook II NA NA 4031
13 Eq4 Ltfo lyl 9246% 177 38% 31 73 Ktm oR ally Corp 11 /3S 31 133 RU LoS tog Tru NA NA 47 4414 Avoloo try 10 147 34% 080% Ho ptl tly PpC 34 73 0S 134 SIr Ngtc Hot NA NA
44443131$
Cr trot tot 329 20% Wa fttrt too REIT 20000 97S4/ 444 135 Sommtt l34tol NA NA 41444
16 00100 t0 St 108 8% 128 13/ 78 oIly Ily Corp 97 6508% $14 138 Suosloo loot NA NA
17 Poll Corp 200 21 71% 34 77 mmooW 18 PElT 224% 78 0% 48 44 137 olH RI SHot NA NA
ISIly
10 om Corp 86 5/ 145 33/ 78 OF fIND Of 3/94/ 7390/ $4 138 Am ro PIty PpIy NA NA 444444Prop rty 12 103 14/ 4.1 79 al hcor ty 40 9% 893% 4/4 10 NA NA 44444.4
NaIl RetotI Is /039% 151 96S 80 otrt too alt 49 3% 781% 140 01 loot NA NA 44.44423 dta
Ity9884% 107 21% 41 91 00 Ppl 3842S 08 74.4 Chomb Ppt NA NA
MAA 80 88% 118 8/4.i 41 It Ho p5 lIly
44 60i4.t ptrtt
RoIly NA NA
Soy ao If SIge 7542% 11 4/ UMH lo 446 98 44 143 DATA Ni COON NA NA 4.034 434
24 Cr ally 04% 4.1313 4$ 84 01 otom 3794% 894 $4 144 STDNI HOC El OR NA NA 444544.4
tGrott Irt 7801% 106 84/ 44 on oar RElY 771 0874.44$
28 EPR Pop St 41 03/fl 134 73/ 44 /4/4% ooo Shrr000rt 44 8/ 232% 744 442/ lIlt NEIT 4981% 97% 44 431o 87 80 ral wth 88/ 29 2% 4429 AU1HCAR C/OR 881S 97/ 4.3o /444 98 odywtoraReolty 47 7% 9% 3374 4.4.4
Ito ormootlt 10 18% 16099S3334 434314 89 l3ltroch llyTr 58 19% 98/ 4434
HOC INS TOP 101 18094S 90 Mo SC
It Neolt 45 9/ 44 0% 4.44 4431 qIttly Re dl 75 /7% 932 34 Co Uodgtog 26 1848% 4k 44
32 Hoo to ftptt Tr 2902% 12/ 59% 44 4444 92 odor ally Stool 4960% 75 44 4444
33 Uotoersal ItS 3309% 11%3443 33144
91 Dttk Realty Corp 5148S 929/
34 Plo 99% 111 3S $7 94 DR Corp 188% 37
It sloc 6300% 87/ 333 rt 11041 Ntralt 48 0S 99% 341
36 Soul 10 6648% 11% 4/444 rkway Ppts 01 436 29 7% /4
Htghwoud Ppt 40% 10 68/ 44/4 Coo too Properttes 66 4S 4.444
38 Bus Park lot 85.22% 98 oh HelIp
889 18 9/ 144$
40 10 00% 79 0/ 31 1433 100 118 or NA NA 440 An oBoy bc 734% 120 80 8814S
MUL AM 8200% 79 0% 434444 101 dtcil Prop rIte NA NA 4444% so Prop rIp 475 103 14% 68042 COoS lotte Comm 665% 1338 344434 102 ha 118 NA NA
$40 .s43 MAA 8009 11848 309 80
41 TRIPU CTOR 05% 044/ 44143 103 toMed NA NA 444 qut 77
44 Equtly Ooe 10 3294% 304044 44% 104 00091 mmdl lot NA NA
374334 roperlt lIt 80/ 34
4o Plum Ct ekTtrob 74% 82 7% 144344 10 ttkl oSt Ppto NA NA /4 43 Post Ppl Il 6200% 79 0/ 141 tON
46 Ktlroy Ity 53 2/ 8040S 44 %41% 108 st plo 10 Tr NA NA 44.744$64 Home Pp Itt 940 01 878S
47 Ooe Utb rIp Pp 090% 131 40% 44 34374 10/ lodsoo cttt NA NA 444444 UDN lo 81% 91 00 11 0040 LaS IN 1101 66.36% 6459% 34 343 108 Pt dm001001 TI NA NA 44 10 CooN of ply 11 2840/ 08% 106 45s
49 Macert Ir Co 3234/ 4% 7449 109 or tI RelIp
NA NA 473% 544 Il Atm 90 79 898 01
Hoots Pp Itt 940 41 3474 130 Dtqtt ItyTr NA NA 44 54
4.34lovootor on 872
UrsI dl tddle 9/ 9614% t5% Ill Wool ab NA NA 474 440 olt Ne ly 8695 18 8/ 66
Ilord pIly Tr II 82 59/ 74 4.1 II OCT 1040 Irt Sr NA NA 44
Moomouth loot 60/ 112 91%31 .43 113 Pr loqt lo NA NA 14 474
UDR lo 21 61 ON 114 AG lodu trtal NA NA /54
re ally Co 62% 108 95% 34j434 44 11rr oIly NA NA
58 lOlatrd at Eslat 10 /4/ 9648 34 %3 AmR IT lot NA NA 54
Catotd 11 28 40% 78 08% 34.5 4459 117 Am rt 00 NA NA 4%HosI Ho oloN 01 5779% 4243% 1% 11 ac lr 10 NA NA
4401
lOP CTR TON 1346% 8038 /48 II tIe Neatly Tr NA NA 4334
60 INDU NIA COO 15 11/ 6% 31 oVh ol NA NA 444
cesNMS 12411/
SP 500 10430DJIA 30146S
Source Public Rhngs Capit 1105445 Sinanctol
Note Analysis based on rep roted consolidated financial statements
19
EXHtBT
AtTV
VT VI
EltIC
it
LA VIA TV VA
AT VA OAAAA
VAT TAT TWA JMTAVV
AAAIOIT TVALTTLCT
4TTIHC FT VT
VT
TV IT
AV CV
tAVTEV ATTCITTTTTATTOV ITVHNV
TV
AT TI TEE ArTTA TVHHAT
AV THAT ITT
TI TI FAT-t HI
-i TA TAVAT
IV
TI IV
VAT TTtI
TA TV
VT
HA IVVtTT tAT -A
AT TV
IV
H1 IT IT
TV1111
TT
TIC
IT
ATTIC
TV
Vt
CT
DTCPS$SRdMptTSkTfl.flWfl EttdTn OSTVlW-3t1
ParTtVlprnN Auturn ETVmT
At
It
HIT
TTVAV TI ITATEATTTtT ANT TVVt
T- tEA VA
VA At
tH
TI TITAN TACT 114 TTIAVTTIATAN CIT
TVItT
NumTVt
TV
IT
VIA
TI
TT
VET
CT
TA
pA
ANT/i Vtt
RULES
BY- LAWS
ORGANIZATION CERTIFICATE
THE DEPOSITORY TRUST COMPANY
JUNE 2013
DTC Omnibus Account CAD Net Settlement Debit 12aDTC Omnibus Account Net Debit Cap 8aDTC Omnibus Account Net Settlement Credit 12aDTC Omnibus Account Net Settlement Debit 12aDTC Omnibus Account USD Net Debit Cap 8aDTC Omnibus Account USD Net Settlement Credit 12aDTC Omnibus Account USD Net Settlement Debit 12aDTC Settlement Payment Deadline 13bDTC Settlement Recap 12bDTC Settlement Recap Time 12bFull-Service Canadian-Link Security 4aFunds lh5Intra-DTC CAD Funds Transactions a5Intra-DTC CAD Securities Transactions a3Intra-DTC Securities 13
Intra-DTC Transactions 10
Limited-Service Canadian-Link Security 4aParticipant Canadian Settlement Bank 13d
Payment Default Conversion Rate 16c
Payment Default Exchange Rate 16aRules and Procedures of CDS 2aUSD Funds h4
Section Overview of Canadian-Link Service
in General
Through link between the Corporation and CDS Clearing and Depository Services
Inc CDS the Corporation provides service the Canadian-Link Service for
the settlement of valued transactions in Securities that are Eligible Securities as
described in Section of Rule and Securities that are not Eligible Securities
in Canadian dollars between Participants of the Corporation and participants of
CDS Cross-Border CAD Securities Transactions
the settlement of valued transactions in Securities that are not Eligible Securities
in US dollars between Participants of the Corporation and participants of
CDS Cross-Border USD Securities Transactions
95 FEBRUARY 2007
the settlement of valued transactions in Securities that are Eligible Securities
in Canadian dollars between Participants of the Corporation and other
Participants of the Corporation Intra-DTC CAD Securities Transactions
the transfer of Canadian dollars between Participants of the Corporation and
participants of CDS Cross-Border CAD Funds Transactions and
the transfer of Canadian dollars between Participants of the Corporation and other
Participants of the Corporation Intra-DTC CAD Funds Transactions
The Corporation provides the Canadian-Link Service as securities intermediary for
its Participants All transactions in securities and transfers of funds are subject to the Rules and
Procedures of the Corporation including this Rule 30 and the Procedures adopted hereunder In
the event of conflict between the provisions of this Rule 30 and the Procedures adopted
hereunder and the provisions of any other Rules and Procedures of the Corporation the
provisions of this Rule 30 and the Procedures adopted hereunder shall prevail The Canadian-
Link Service shall constitute Program for purposes of the Rules and Procedures of the
Corporation
Specific Transactions
For the settlement of Cross-Border CAD Securities Transaction between
Participant of the Corporation and participant of CDS
where Participant of the Corporation is the seller of the Securities the
Securities are debited from the account of the seller at the Corporation credited to
the account of the Corporation at CDS and delivered against payment to the
purchaser through the facilities of CDS money settlement between the
Corporation and CDS is included in the Canadian dollar settlement of transactions
processed through the facilities of CDS and money settlement between the
Corporation and the seller takes place between Canadian settlement banks acting for
the Corporation and the Seller and
where Participant of the Corporation is the purchaser of the Securities the
Securities are delivered against payment to the Corporation through the facilities of
CDS debited from the account of the Corporation at CDS and credited to the
account of the purchaser at the Corporation money settlement between the
Corporation and CDS is included in the Canadian dollar settlement of transactions
processed through the facilities of CDS and money settlement between the
Corporation and the purchaser takes place between Canadian settlement banks
acting for the Corporation and the purchaser
For the settlement of Cross-Border USD Securities Transaction between
Participant of the Corporation and participant of CDS
96 FEBRUARY 2007
where Participant of the Corporation is the seller of the Securities the
Securities are debited from the account of the seller at the Corporation credited to
the account the Corporation at CDS and delivered against payment to the purchaser
through the facilities of CDS money settlement between the Corporation and
CDS is included in the US dollar settlement of transactions processed through the
facilities of the Corporation and money settlement between the Corporation and
the seller is also included in the US dollar settlement of transactions processed
through the facilities of the Corporation and
where Participant of the Corporation is the purchaser of the Securities the
Securities are delivered against payment to the Corporation through the facilities of
CDS debited from the account of the Corporation at CDS and credited to the
account of the purchaser at the Corporation money settlement between the
Corporation and CDS is included in the US dollar settlement of transactions
processed through the facilities of the Corporation and money settlement
between the Corporation and the purchaser is also included in the US dollar
settlement of transactions processed through the facilities of the Corporation
For the settlement of an Intra-DTC CAD Securities Transaction between
Participant of the Corporation and another Participant of the Corporation
the Securities are debited from the account of the seller at the Corporation and
credited to the account of the purchaser at the Corporation
money settlement between the Corporation and the seller takes place between
Canadian settlement banks acting for the Corporation and the seller and
money settlement between the Corporation and the purchaser also takes place
between Canadian settlement banks acting for the Corporation and the purchaser
Cross-Border CAD Funds Transaction between Participant of the Corporation
and participant of CDS is processed through the facilities of CDS
An lntra-DTC CAD Funds Transaction between Participant of the Corporation and
another Participant of Corporation is processed though Canadian settlement banks acting for the
Corporation and such Participants
Certain Definitions
For purposes of this Rule 30
Participants of the Corporation that use the Canadian-Link Service are referred to as
Canadian-Link Participants
participants of CDS other than the Corporation are referred to as CDSParticipants
97 FEBRUARY 2007
EXHIBIT
David Gorden Managing Director The following presentation provides detailed analysis of the Equity PElT market
617 3856220 including current trading total return leverage coverage and valuation statistics
od ycorn
Uo lyze qu EIT oH wmgkK MngigDir tr
70 re tud nt
mko dtkey uf ur
Mutifm
John mg M0 ging Dir to
16 689 46 ffic tn
jhommig n@k ter
MIl
Micha Hawkin Ma iaging ecto
12 476 74 Indu try
mich eLhaw ins om ni
Eq Ity lu tha
Robert Woomer tom ye
74
robe woomer
ect on rovid tab ch
Ru nc kDire tor te
61138 62
rhanco k@k orn
Cur otyekl 441% 3/ 9% 02A 421% 5% 361% 4801/ 9% 2949/ 3oO% 48
Mark to 46 $1 941 577 13 6208 74 $1989 4011 600 16 $1 917
Aggregut 586313 80313 11913 $291 49613 113413 7833 $8308 37 13 $5
uterpoo lue 784 $3490 08 $5 419 1440 $1 791 346 08 015 973 21
Agg go 122 $14120 713 45613 13 $834 17990 $1018 $988 $1274 633 18
Wuek 0101 Returo 290% 40 4002 98/ o62 377% 424% 320/ 87% 2% 83%
Moth Tot turn 1714% 9o 616/ 1081 1048% 3% 108 01 813% 416% 1084% 489
TM 0301 turn OT 39 06% 7% 903% 4740 14/o 04 46 0% 6% 45
Total turn 1/ 13 6% 12 03% 587 41 84/0 4841% 348 47 JO 17 4% 7407 809/a St 06%
31/ riot rn too 88% 981% 48 0/ 3o9 5833% 734/o 107 91610/ 979% 1300/ 37 79
4YeuTot 1R turn 065 134 3/ 17421% 13 86 1t179/ 13080% 40 88% 162 8% 14478% 196 bIb 18857%
9/ Tot Return 110 56/ 8372 668 10 689 1849% 926% 5641% 4428% 81 76 8/ 11 1/ 14 90 OOu
8TDAl PlO 48o 47u 218x 2400 80 3740 6u 64u 73u
bt P34 269 83 997/o 161/ 71Y 48 37% 87% 39800/ 36 2o 245 987%
prl3r I/lI 830 800 187bu 136 1750x 1938o 60 060u 1207u 77u
P1143 1o72u 40u ib9su 1777 13190 16930 1793u t47 1670 1911u 1075x 14710
P13A FO Ox 1663x 803 001 70x 234 19 9u 17 7x 07 lx 16
PT 1990 148 2420 18870 78 1788 16 29u 19 70u 2076 02x
FF0 pout 7/8% 44/0 60 68 ol 3% 77 80% 6210 614/ 466 83
AF OPuy xl 6% 77 640 92 78 824% 81 6297 731 u7 0/ 960/0 816
Source Ruble longs tat IC SNL %inanciat
Note Anatysos based on reported consolidated 6rtaroctat statements
i8r 44 4412
IiiIiiIHj80 0% 80 1% to 90 0% to 95 0% to 97 5% to
900% 9500 915/ 0000
100.0% to 1025% to 1050% to 1015% to 1100% to 1125% to 1150% to 1175% to 120.0% to 125
102 5o 105.000 107 500 110.00 112.55 15.05 111.5 120.0 12
OR 4o 4445
/4meg He Rh oe 3404 17 61 hite tone 121 16 4Q rr no ty 19
Na Rh nor 67 $39.93 364 615 62 First ted Realty $17.83 $1664 1O 14% BRE Propertm nc 56
Am Sy Ppty 164 985 63 Plum Crook limber $51.83 $4839 46y 123 MULTt AMtLY FOR $000 /5 4854
Golly tty Corp 89 13 30 4164 $4 64 Di catty Corp $17.41 $1 026 4k 12 irs 53 68
Mcdx Prop r5 $10 41 44 OFF/tND SECTOR $000 21 047 125 UDR tn 42.028 2894
508 .7 66lOony sep 67.02 .404 .4% 126 Rotor no ro
21841
alIt RLIT $1404 $479 48V 67 ou in opertes $10S1 $981 04 54 mdor PFtp Tr $7211 $7 07
AL HCA ES CTCR $0.00 $269 s% 68 Sen ton Hoteltost $12.68 $11.91 128 dar Re ly ru $631
LTC Pooperti ton $4490 $29.59 44 69 Agr Re ty Corp $33.47 31 44 Post Ppt Inc $5007 4410 Vent to $16.66 60 70 ri Co $5686 410 130 Mac Cal al $21 29
11 ally Irocom Corp $49.67 425 OO rtyTr $15390 39 41 131 Wmthrop Ity$1 $1 98 45
br Rh Ca 529.50 7% CoreSite Re Ity $33 70 96 pm Ho p4 ity 404 $44
13 rep too $71.99 $53 41 413 Vt pt scm To $2560 41 41 tr tegic telo $81 10 41 54
14 VS pa stg $4344 $3249 14 MALL SECTOR $000 3O 4415 tI il $3885 $29 134 75 American Campus $4309 $41 4111 $44 olonial 2340 670 41
16 PubIc to ag $15259 $12882 4414 76 Corp 015cc Ppts $27 54 136 rot Potom 14 $16 45
17 SlAG ndu al $2305 $1829 t$%/ 77 RamcnoGershenson $16 $16.22 51 137 uperlel 00 88 4111
15 FetCor Lodgmg Tr $615 $4.96 78 Excel Yr too $1460 $1414 45 Unm at alth $481 NA
19 un Comrrrumtie $5245 $428 511313/
79 Mid America Apt $1206 669 7941.4 13 tadt Biddle 220 NA
20 PR ro Re $5654 $462 4t 5% 80 Hi hwoods Ppts Inc $374 $3633 45 140 UMH Inc 108 NA 445 4544FOR CIOR $0.00 $47 81 gital Realty Fr 30 94 141 Rob rts 31 ally 44N 45
Ou ark Inc $81.45 $6667 41 82 DA HF TOR $0.00 31 96 544 457 142 ROt Hotel 440 NA 454545I
23 Ret ii Opportunity $1499 $1229 497% 83 Ho Hot lsR sort $1813 1764 75%
24 act oap Ppt Inc $62 55 41 84 BioM 31 Ity Fr $22 20 0/4 10
Retail Proptrt $1472 $1 85 SL Or en II $90.97 $8894 .910
26 Cub on $1668 14 tO 514 O% 86 06 tC 01031 $0.00 24 i110
27 quity Inc $25 04 $21 4I 47 One Lib rty Ppt $27.00 $2 40 %5O
25 HOUSIN CTOR $000 $5741 545 88 Frankl nSt p1 $13.93 $1367 5111
29 Lihe ty Ppty $4202 3637 41 89 Kirrrco Realty Corp $23.15 $2
Hcalthca Re It $27.23 60 1013 90 Glimcher Reall Tr $1245 $122 41
Housing Ppt $27.88 4513 $4 91 Pennsylnania ROT $21 19 $2086 4133 4%32 Hud on Pa ito $22.82 1992 92 Piedirront Office Tr $2011 $19 3%
Doug mmett Inc 11 If P1 93 Investors RE Trust $946 $9 93
14 Pot orp 49 416 13 94 Educxtian RealtyTr $11 07 $1091 404TArre ic 01k $347 $30 31$ 95 SIDNT HOUS SEEFOR $000 $1 4134 $4
36 qty Lit tyle $81 04 $11 99 451 Boston Properties $11244 $111.14 414154
Weing mlRe
lIp $33.26 961 4141 41/597 General Growtfr $21.54 $21 49
38 Federal Re Ity $113.34 10096 574 98 EquIp Resdl $6030 $601 45
39 Leonog arm Realty $1263 $11 2614 411441 99 MPG Office Fm trmo $313 $3.1 544440445
40 Acadia Realtp Tr $27.29 245 454444
100 Chesapeake Lodging $23.13 234245 364
TTT2ttrial7 7.73 6951011 3% 101 Hersha Hospitality 595 603
10 57%
42 Brasdywine Realty $14.92 1343 1tii 461% 102 Rayomer nc $58.15 908 445443 Monmouth RE tnvt $1077 $9.73 11469% 103 Taubmas Centers $84.44 $8598 9/44 Soorar SIt Stge $68.56 $61 13041 31 104 Sunom Hote Ppts $10.19 $10 .908
49 Regescy Centers $014.47 $49 10 $4 105 LODGING S6C FOR $0.00 $1 60 45
46 7Iospillity Ppts 0.86 79 44 /a Tho Ash urd Hsplty 1330141
41 INDUSTRIAL SECTOR $000 $1954 .914% 107 Vornado Roalty To $8427 $8 9641 44
48 Tanger Factory $36.65 28 45444 AvaomrBay Inc $138.68 $141 14
49 TRIPL NEF SECTOR $000 782 141 109 CapLease tic $7.10 $7.2 11
lrit7 21.56 1968 10 11 $4 iii ashingtor 30.19 10 e%5 13 Colonial Ppls Fr $2340 $2670 87 64/
52 DDR Corp $1871 $17.09 .4 41 112 RU Lodging Tract $23.45 $24 444453 SHOP CTR SECTOR $000 $1 7.09 4011.48% 113 Cfratham Lodging $1920 $1987
54 Parkway Ppts Inc $1801 $1650 51O$I 114 DiamondRock Hsptly $9.51 $9.90 04e1
55 tnland Real Fotate $11.33 $1039 1O.4 /c 11 Alexandria RE $7370 $76.983%
51083454 ampos rst 19 4/
57 Pebhlc.brook Hotel $27.16 .104 117 LaSalle Hotel $26.56 $27.94 41408
58 CBL Aosoc Ppts $25.20 $23 54 118 DuPont Fabros Tech $25.53 $2686 0459 Simon Property $17447 $161 1St 119 Saul Centers bc $45.58 $480 411141
60 Oladslone Conm $2046 $1900 111 41% 120 Home Ppts Inc $6364 $6712 414 41
Eosex Property Jr $16390 $55 39 lux.n6o
Mid America Apt $7206 169 79 103.25%
Investors Trust $946 $932 01 50/
Equity Rescil $6030 $60.13 100 28%
AvalonBay lic $13158 $141.56 97.89%
ePpIsInc6346.t9482yBRE Properties to- $2 35 $55.64 34 0900
Aimco $31.61 $3366 9391C
UDR Inc $25.28 $26 94 93.84%
10 Camden PFtyTr $72.11 $7707 93.56%tPptsInicb9343/0
52