Market Snapshot
  • U.S.
  • Europe
  • Asia
Ticker Volume Price Price Delta
DJIA 16,408.54 -16.31 -0.10%
S&P 500 1,864.85 2.54 0.14%
NASDAQ 4,095.52 9.29 0.23%
Ticker Volume Price Price Delta
STOXX 50 3,155.81 16.55 0.53%
FTSE 100 6,625.25 41.08 0.62%
DAX 9,409.71 91.89 0.99%
Ticker Volume Price Price Delta
NIKKEI 14,516.27 98.74 0.68%
TOPIX 1,173.37 6.78 0.58%
HANG SENG 22,760.24 64.23 0.28%

Corvex And Related Announce Ownership Of 9.8% Of CommonWealth REIT (CWH)



   Corvex And Related Announce Ownership Of 9.8% Of CommonWealth REIT (CWH)

In Letter to Board of Trustees Call on CWH to Cease Dilutive, Value
Destructive Equity Offering and Debt Repurchase; Provide Presentation Laying
Out Specific Steps to Maximize Value for Shareholders

PR Newswire

NEW YORK, Feb. 26, 2013

NEW YORK, Feb. 26, 2013 /PRNewswire/ -- Corvex Management, LP ("Corvex") and
Related Fund Management, LLC ("Related") announced today that investment funds
managed by them collectively own approximately 9.8% of the outstanding common
shares of CommonWealth REIT ("CWH" or the "Company"). Corvex and Related
believe that CWH's portfolio of real estate assets trade at a substantial
discount to fair value due to a misalignment of incentives between the Company
and its external advisor, REIT Management & Research LLC and track record of
underperformance.  

Corvex and Related have released an open letter to the Company's Board of
Trustees demanding that the Company immediately cease a value destroying
equity offering and debt repurchase, and enter into discussions with Corvex
and Related regarding maximizing long-term value for all CWH shareholders.
They have also publicly filed a Schedule 13D, including a detailed
presentation outlining a clear path to value creation for CWH. Based on a
comprehensive property-by-property valuation analysis, Corvex and Related
believe that CWH's NAV was approximately $40 per share as of February 25,
2013, which is generally consistent with CWH's book value of approximately $37
per share, as opposed to the closing price of $15.85 on February 25, 2013.
Corvex and Related believe that if the Company implemented, among other
changes, an internal management structure, basic operating performance
enhancements and a more shareholder-friendly capital allocation policy, CWH
could achieve a target price of more than $50 per share over a two year
period.

If the Board fails to adequately respond, Corvex and Related are prepared to
seek the removal of the Board so that it may be replaced with five truly
independent trustees. Corvex and Related would also be prepared to acquire all
the outstanding shares at a significant premium to the current market value. 
Accordingly, they demand that the Company not proceed with this dilutive share
issuance.  

The letter follows:

Board of Trustees
CommonWealth REIT
Two Newton Place
255 Washington Street
Newton, MA 02458-1634

February 26, 2013

Dear Members of the Board of Trustees:

Corvex Management, LP ("Corvex") and Related Fund Management, LLC ("Related")
separately manage investment funds that collectively own approximately 9.8% of
the outstanding common shares of CommonWealth REIT ("CWH" or the "Company").
We have deep industry experience and have spent considerable time with our
advisors analyzing CWH's assets and corporate structure.  We are publicly
filing today a detailed presentation outlining a clear path for maximizing
value for all of CWH's shareholders.

We believe that the Company's real estate assets are significantly undervalued
due to the misalignment of incentives between the Company and its externally
advised management structure, and track record of underperformance. Based on a
detailed property-by-property valuation analysis, we believe that CWH's net
asset value as of February 25, 2013 was $40 per share, as compared with the
current per share price of $15.85. We believe that if the Company implemented,
among other changes, an internal management structure, basic operating
performance enhancements and a more shareholder-friendly capital allocation
policy, CWH could achieve a target price of more than $50 per share over a two
year period.

We believe that CWH's shares trade at such a large discount mainly because the
Company's externally advised management structure skews incentives, reduces
CWH's cash flow through excessive fees and impairs the Company's valuation. We
note that, according to public filings, over the last five years the Company
has paid out over $336 million in management fees to REIT Management &
Research LLC ("RMR") – representing over 20% of CWH's market capitalization as
of the close of business on February 25, 2013. In addition, these fees are
based primarily on historical costs, and reward management for acquisitions
regardless of financial returns or strategic rationale. We also note that
CWH's management and Board own very little stock in CWH (less than 1% of the
Company) and their misaligned incentives have led to a strategy that has
sought to maximize management fees for RMR at the expense of CWH's
shareholders. 

Furthermore, the Company's poor corporate governance exacerbates the inherent
conflicts of interest between management and shareholders. Among other things,
the Company has: a classified board; a "poison pill" triggered by the
acquisition of only 10% of CWH's outstanding shares, with a "slow hand"
provision; and questionable trustee independence. This has insulated
management and further misaligned the interests of management and its
shareholders. ISS has also taken notice, recommending against CWH's incumbent
board trustees last year.

The misalignment of interests and poor governance are all made readily
apparent by the announcement on February 25, 2013 that CWH has commenced an
underwritten public offering of up to 31,050,000 common shares (including the
anticipated over-allotment option), the proceeds of which will be used to
repurchase up to $450 million of certain of the Company's outstanding
investment grade unsecured senior notes, to repay other debt and for "general
business purposes". The proposal to raise equity when the stock trades at such
a large discount to its intrinsic value is absurd, and more than anything
speaks to the incredible disconnect between the goals of CWH shareholders and
the Board and RMR. We also note that our $40 per share estimate of NAV is
generally consistent with CWH's book value of approximately $37 per share, and
are astounded that the Board of Trustees would consider issuing equity at a
time when the shares are trading at $15.85 which is 43% of their own estimate
of minimum fair value.

Based on our above analysis, the proposed offering would represent a massive
dilution to existing shareholders that would be highly destructive of
shareholder value. In addition, we question why the Board would repurchase
investment grade debt on highly attractive terms at a large make-whole premium
with no near term maturities or liquidity issues. It appears that the external
manager's goal is to grow the Company's equity base, increase its acquisition
capacity and ultimately increase management fees – all at the expense of
creating value for CWH shareholders. Instead of this approach, the Board
should be selling assets into the market and repurchasing shares.

We demand that the Board of Trustees immediately cease this ill-advised
offering and debt repurchase  and engage in frank and open discussions with us
regarding CWH's business and strategy. If the Board of Trustees proceeds with
a course of action that is clearly destructive to CWH's shareholders, we
intend to hold you and CWH's management responsible for this and other
potential breaches of your fiduciary duties.

We are filing today a detailed presentation outlining a clear path for value
creation at CWH and believe the following immediate steps must be taken to
close the massive discount between the public market value and NAV:

  o Internalization of management structure, adoption of a market cost
    structure, and alignment of management compensation with shareholder
    returns;
  o Replacement of existing Charter and Bylaws to conform to ISS and Glass
    Lewis best practices;
  o Appointment of three new independent trustees;
  o Cessation of all related party asset sales;
  o Cessation of all acquisition and development activity until CWH's stock
    price exceeds its NAV; and
  o Use excess cash flow and proceeds from asset sales to buy back stock or
    delever until the Company's stock price exceeds its NAV.

If necessary, we are prepared to seek the removal of the entire Board of
Trustees though an action by written consent so that the Board may be replaced
with Trustees that will be responsive and representative of the interests of
all of CWH's shareholders and not just its management.  Furthermore, Corvex
and Related would also be prepared to acquire all the outstanding shares at a
significant premium to the current market value.  Accordingly, we demand that
the Company not proceed with this dilutive share issuance. 

 

Sincerely,

Keith Meister
Corvex Management LP
712 Fifth Avenue, 23rd Floor
New York, New York 10019
(212) 474-6700

Jeff T. Blau
Related Fund Management, LLC
60 Columbus Circle
New York, New York 10023
(212) 421-5333

About Corvex Management, LP
Corvex Management, LP is an investment firm headquartered in New York, New
York that engages in value‐based investing across the capital structure in
situations with identifiable catalysts. Corvex was founded in March 2011 and
follows an opportunistic approach to investing with a specific focus on equity
investments, special situations and distressed securities largely in North
America.

About Related Fund Management, LLC
Related Fund Management, LLC is an affiliate of Related Companies, one of the
most prominent privately-owned real estate firms in the United States. Formed
40 years ago, Related is a fully-integrated, highly diversified industry
leader with experience in virtually every aspect of development, acquisitions,
management, finance, marketing and sales. Related's existing portfolio of real
estate assets, valued at over $15 billion, is made up of best-in-class
mixed-use, residential, retail, office and affordable properties. For more
information about Related Companies please visit www.related.com.

Copies of the detailed presentation are included in the 13 D filing and
available on EDGAR. Copies can also be obtained by contacting Rupal Doshi of
Corvex at (212) 474-6750 or rdoshi@corvexcap.com or Joanna Rose of Related at
(212) 801-3902 or jrose@related.com

SOURCE Related Fund Management, LLC

Website: http://www.related.com
Sponsored Links
Advertisement
Advertisements
Sponsored Links
Advertisement