Billionaire investor Sam Zell has joined a slate of nominees by investors seeking to overthrow the board of CommonWealth REIT, the U.S. office landlord being targeted by claims of mismanagement and conflicts of interest.
Zell and David Helfand, co-president of Zell’s Equity Group Investments, will join the proposed slate of directors to be nominated at a special meeting of CommonWealth shareholders if the current board is removed, according to a statement today from investors Corvex Management LP and Related Cos.
“We are fully supportive of Corvex and Related’s efforts to maximize value at CommonWealth for all shareholders,” Zell, chairman of apartment landlord Equity Residential, said in the statement. “We see an attractive opportunity at CommonWealth uniquely suited to our expertise in leading public real estate companies and in turning around underperforming assets.”
An entity affiliated with Zell and Helfand will have an option to acquire as many as 4 million CommonWealth shares, according to the statement. They aren’t stockholders currently. Zell and Helfand are willing to serve as chairman and chief executive officer, respectively, of the Newton, Massachusetts-based REIT, Corvex and Related said.
Corvex and Related, which have a combined stake of 9.6 percent in CommonWealth, have been seeking to oust the office landlord’s board since last year, arguing that the ownership of an external management firm, REIT Management & Research LLC, by CommonWealth President Adam Portnoy and his father Barry, a company founder, has led to conflicts of interest and underperformance at the REIT. Both Portnoys sit on the board and are owners of the external management company.
The latest move is “a masterful stroke of genius on behalf of the Corvex and Related team, systematically hammering nails into the Portnoy coffin,” John Guinee, an analyst at Stifel Nicolaus & Co. who has a hold rating on CommonWealth shares, said in a telephone interview. “We continue to expect the stock to go up as investors perceive a solid victory for Corvex and Related.”
CommonWealth rose 2.8 percent to $26.39 today. The shares have gained 54 percent in the past year.
Zell, 72, nicknamed “the grave dancer” for buying distressed properties left for dead in the 1990s, sold his Equity Office Properties Trust in 2007 for $39 billion as the commercial real estate market was peaking. Zell is chairman of four public companies, including REITs Equity Residential, based in Chicago, and Equity Lifestyle, an owner of manufactured-home communities.
CommonWealth yesterday set Feb. 18 as the record date for shareholders entitled to vote to remove the board. Corvex and Related said today that record date was “conditional” and that it plans to submit its own record-date request by Feb. 16.
CommonWealth has denied Corvex and Related’s claims of conflicts of interest and has said it is focusing on buying office buildings in U.S. downtowns and selling suburban properties to boost shareholder value.
The REIT in September announced changes to improve its corporate governance after conversations with investors who said they wanted RMR’s financial incentives to be more aligned with shareholders. The changes to the management agreement were made in December, according to CommonWealth.
“We are thrilled to be joined by Sam Zell, whose chairmanship of other REITs has unquestionably maximized value for shareholders,” Keith Meister of Corvex and Jeff Blau of Related said in the statement. “We believe that once CommonWealth shareholders are given a choice between the Portnoys and their record of value destruction and Sam Zell’s record of value creation for shareholders, the choice is clear.”
A message left for Tim Bonang, CommonWealth’s director of investor relations, wasn’t immediately returned.