CommonWealth REIT said it would proceed with a planned offering of 27 million shares, rejecting a call from activist investors to scuttle the sale.
“The best interests of CommonWealth will be served by CommonWealth continuing the common share offering and debt tender offer previously announced,” the Newton, Massachusetts-based real estate investment trust said in a statement today.
CommonWealth said two days ago that it would issue stock and use the $450 million in proceeds to retire some of its debt. Activist investor Keith Meister and Related Cos., who together own 9.8 percent of the REIT’s existing shares, challenged the plan yesterday, saying they’re prepared to make a bid of $25 a share, or $2.1 billion, for the company. They are also prepared to file a lawsuit to stop the share issue, according to a letter sent to CommonWealth by Related and Meister’s firm, Corvex Management LP.
Issuing 27 million additional shares will dilute CommonWealth’s outstanding stock by more than 30 percent, according to data compiled by Bloomberg, lowering the dividends paid to shareholders. REITs, whose primary income streams are from real estate, are required by the Internal Revenue Service to distribute at least 90 percent of their taxable earnings to shareholders in the form of dividends. In exchange they pay little or no income tax.
Shares of CommonWealth jumped 54 percent yesterday, the most since at least 1986, after Corvex and Related challenged the offering. The stock closed at $24.40.
If the company doesn’t cancel the share offering, Corvex and Related may try to replace members of the board, including CommonWealth President Adam Portnoy and his father, Chairman Barry Portnoy, according to a regulatory filing yesterday.