Corvex Asks Court to Void CommonWealth REIT Amendments

CommonWealth REIT’s largest investors, activist Keith Meister and Related Cos., asked a Maryland state court to void the real estate investment trust’s bylaw amendments that make it difficult for shareholders to replace board members.

The amendments are a “clear contravention” of CommonWealth’s charter, Meister’s Corvex Management LP and Related said today in a statement. The request was filed in an amended complaint in a case pending in state court in Baltimore.

“We believe shareholders will have the opportunity in the near term to exercise their right to vote on the removal of the entire CWH board of trustees,” Meister and Related Chief Executive Officer Jeff Blau said in the statement.

Corvex and Related sued to stop an offering of 34.5 million shares that was completed last week because of the dilution it would cause. The two companies filed documents with the U.S. Securities and Exchange Commission on March 13 asking shareholders to consent to the board’s removal.

“We continue to dispute their various allegations and we will continue to defend against them vigorously,” Tim Bonang, a spokesman for CommonWealth, said today in a phone interview.

Bylaw Change

CommonWealth, based in Newton, Massachusetts, changed its bylaws on March 1 to make it harder for an investor to replace board members. A shareholder or group of investors must own 3 percent of the company for at least three years before taking action to remove a trustee, according to a regulatory filing.

Prior to March 1, no more than two shareholders had a reported holding that filled the requirements of the amendment, Corvex and Related said in the amended complaint.

Corvex and Related own a stake of about 8.6 percent, according to a March 13 regulatory filing. The companies owned 9.8 percent of outstanding shares prior to the equity offering and alleged in the complaint that commencement of the transaction, two days after their stake crossed the 5 percent threshold, was “very suspicious.”

CommonWealth’s five-member board of trustees includes President Adam Portnoy and his father, Barry Portnoy, a company founder. They also own Reit Management & Research LLC, the external management company for the REIT.

Management Fees

Reit Management is to blame for much of CommonWealth’s conduct, Corvex and Related said in the amended complaint. The trust has implemented a portfolio strategy of purchasing properties at a high valuation to maximize the management company’s fees and has engaged in multiple party-related asset transactions to develop new business platforms and income streams for Reit Management, according to the complaint.

“The trustees and RMR have engaged in self-interested conduct that has sacrificed and continues to sacrifice CommonWealth shareholder value for the benefit of the trustees’ and RMR’s own entrenchment and profit,” according to the complaint.

The amendments restricting shareholders’ ability to act by written consent and extending the consent solicitation period to 210 days from 120 days seek to “unlawfully eviscerate” the legal rights of shareholders, according to the complaint. The amendments were not subject to shareholder approval or ratification, Corvex and Related said in the filing. They are asking a judge to rule the changes invalid and unenforceable.

The case is Corvex v. CommonWealth REIT, 24C13001111, Circuit Court of Maryland, Baltimore City.

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