On March 13th, two of CommonWealth REIT’s largest shareholders, Corvex Management LP (headed by Carl Icahn disciple Keith Meister) and Related Fund Management LLC, filed a preliminary consent solicitation statement with the SEC seeking to remove the property dealer’s entire board of trustees.
The move follows several public letters from the shareholders to CommonWealth requesting that the REIT halt an equity offering of 34.5 million shares on grounds that the offering was undervaluing the REIT. As part of the request, Corvex and Related said that they were prepared to purchase the equity for $27 per share. Corvex and Related sued the Trust when it decided to go ahead with the offer, however a Boston judge ruled the deal could proceed. The Trust sold the shares for $627 million, or about $19 per share. Corvex and Related claim that the equity offering was orchestrated in order to dilute their interest in the REIT and discourage a takeover. Corvex and Related also claim that the REIT implements a portfolio management strategy of purchasing properties at high valuation in order to maximize the fees of its external manager – Reit Management and Research LLC, or RMR. The external manager is controlled by Barry Portnoy and his son, Adam. Both Portnoys serve as managing directors on at least six public REITs managed by the RMR, including CommonWealth, of which Adam Portnoy also serves as president. Corvex and Related’s concerns are echoed in a lawsuit by the Delaware County Employees Retirement Fund of Pennsylvania, which claims that the Portnoys are using affiliate companies to fraudulently hike up fees payable to Portnoy controlled RMR.
If the consent solicitation is not blocked, the REIT’s bylaws require the affirmative vote of two thirds of the outstanding shares in order to remove trustees without cause. On March 1st CommonWealth amended its bylaws to make it more difficult for shareholders to replace trustees – requiring that shareholders hold 3% of the REIT for at least three years prior to action for removal. In addition to Corvex and Related, 8% owner Luxor Capital and hedge fund sponsor Perry Corp. have come out in support of the board’s removal. In a March 13th filing Perry Corp. revealed a 5.5% stake in the REIT, stating that “proper corporate governance is critical to unlocking the inherent value in
Whether or not other REITs affiliated with the Portnoys and CommonWealth will attempt to protectively shore up their bylaws remains to be seen. Several of the RMR managed REITs have seen high director against votes in the prior year, including a 58% against vote toward Bruce Gans at Hospitality Properties Trust and a 57% against vote Barry Portnoy at Senior Housing Properties Trust. Bruce Gans resigned from that REIT in accordance with its majority vote standard, however the board sought fit to immediately reappoint him to his position. Senior Housing Properties Trust maintains a plurality vote standard, and as such Barry Portnoy was effectively reelected. TravelCenters of America, another public property company affiliated with the Portnoys, has put forth a proposal for the 2013 meeting that would replace that company’s majority vote standard with a plurality standard.