CommonWealth REIT Says Ousting Board Would Hurt Landlord

CommonWealth REIT said a campaign by its largest shareholders to remove the board serves only those investors and would bring “harm and disruption” to the property owner’s business.

The real estate investment trust is urging stockholders to reject the efforts by Corvex Management LP and Related Cos. to control the company and install new trustees, Newton, Massachusetts-based CommonWealth said today in a statement. The current board and management have “critical knowledge of the company’s operations and properties,” CommonWealth said.

Keith Meister’s Corvex and Related, led by Chief Executive Officer Jeff Blau, last week asked a Maryland state court to void amendments to CommonWealth’s bylaws that make it difficult for shareholders to replace board members. The New York-based investors, who unsuccessfully challenged a share sale by the REIT earlier this month, said in a Feb. 26 letter to the board that a “misalignment of incentives” between the REIT and its external management has driven down the value of the stock.

“Corvex and Related are primarily interested in reputation building” with their “self-serving activism campaign against CommonWealth’s board,” the REIT said in the statement. “A wholesale removal of the company’s trustees without cause is not in the best interest of the company and would bring material harm and disruption to the business and operations.”

Control Premium

Shareholders are being asked to relinquish control of the company without Corvex and Related “committing to pay a control premium, or even any amount, for the outstanding CommonWealth common shares,” the REIT said.

Joanna Rose, a spokeswoman for the investors, said she couldn’t immediately comment on CommonWealth’s statement.

Corvex and Related filed documents with the Securities and Exchange Commission asking CommonWealth shareholders to consent to the board’s removal, the companies said last week. They hired Deutsche Bank AG as their adviser and intend to work with the lender on any financing required for their effort.

CommonWealth sold 34.5 million shares at $19 each in an offering completed on March 5 that resulted in net proceeds of about $628 million. Corvex and Related sued to block the offering because of the dilution it would cause to stockholders. The investors estimate the company’s real estate assets are worth about $40 a share.

Corvex and Related own about 8.6 percent of CommonWealth, according to a regulatory filing.

Amended Bylaws

The REIT 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 filing.

CommonWealth’s charter permits holders of two-thirds of the outstanding shares to remove trustees by written consent, Corvex and Related said last week. The board would then have to call a special shareholders’ meeting to elect its successors.

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, or RMR, the external management company for the REIT.

Corvex and Related claim that the board buys properties at a high valuation to maximize management fees for RMR.

CommonWealth rose 0.9 percent to $23.11 at the close in New York.

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