Recommends That Shareholders Reject
Related/Corvex’s Efforts to Seize Control of CommonWealth Without
Paying Shareholders Anything
Notes Related/Corvex’s Plan for CommonWealth
is Reckless, Short Term Oriented and Not in the Best Interests of
All Shareholders
CommonWealth Board Recommends that
Shareholders Sign, Date and Return CommonWealth’s WHITE Consent Revocation Card and Discard any
Materials from Related/Corvex
CommonWealth REIT (NYSE: CWH) today announced that it has mailed
a letter to shareholders asking them to support the Board’s
continuing efforts to create long term value for all shareholders
rather than the ongoing effort by Related Fund Management, LLC and
Corvex Management LP (“Related/Corvex”) to seize control of CWH
without paying shareholders anything for that control.
Adam Portnoy, Managing Trustee and President of CWH, made the
following statement:
“The CWH Board and management are successfully executing on the
Company’s business plan and we remain focused on creating long term
value for all shareholders. We believe Related/Corvex are
misleading shareholders by claiming to be champions of good
corporate governance and stewards of shareholder value when, in
fact, their goal is to take control of CWH without paying for
it.”
“Related/Corvex recently announced they have given Sam Zell $17
million of in-the-money CWH stock options to serve as one of their
designated replacement trustees, but they have offered nothing to
shareholders. We believe the options which Related/Corvex have
granted to Zell are intended to encourage him to support the
Related/Corvex short term and reckless plan for CWH, which could
destroy value for long term shareholders.”
“We look forward to continuing to engage with shareholders in
the coming weeks and will continue to vigorously defend the
interests of all CWH shareholders.”
The CWH Board recommends that shareholders sign, date and return
CWH’s WHITE consent revocation
card and discard any materials they may receive from
Related/Corvex.
The full text of the letter follows:
February 24, 2014
To the shareholders of CommonWealth REIT:
DO NOT BE MISLED BY
RELATED/CORVEXINTO PUTTING YOUR INVESTMENT AT RISK
Please sign, date and return the
enclosedWHITE consent
revocation card
today___________________________________________________
Jeff Blau of the Related Companies and Keith Meister of Corvex
Management have recently written to CommonWealth shareholders
pretending to be champions of good corporate governance and
stewards of shareholder value. We believe Related/Corvex’s real
goal is to take control of CommonWealth for their own benefit and
without paying you anything for that control.
Instead of offering you a takeover premium for your shares,
we believe Related/Corvex are attempting to get control of
CommonWealth via a written consent and without paying shareholders
anything.
Almost one year ago, Related and Corvex made public
announcements that they were interested in purchasing all of
CommonWealth’s shares at a premium price. However, when the
CommonWealth Board asked Blau and Meister to present evidence of
financial capacity and an offer which would be actionable by
shareholders, Blau and Meister instead began a campaign to take
control of CommonWealth without paying shareholders anything.
Blau’s and Meister’s complaints about Adam and Barry Portnoy
and the fees paid to RMR appear to be intentionally misleading.
More importantly, they are not true.
In their letter to shareholders dated January 28, 2014, Blau and
Meister complained that “Barry and Adam Portnoy continue to line
their pockets” with fees paid to RMR. They also complained that
“annual fees have grown from $59.7 million in 2007 to $77.3 million
in 2012, an increase of nearly 30%”.
The facts, which are well known to Blau and Meister, are as
follows: Barry and Adam Portnoy are owners and employees of Reit
Management & Research LLC (“RMR”). CommonWealth has no direct
employees but it is managed by RMR. RMR has approximately 850
employees in its Boston area headquarters and branch offices across
the U.S. Rather than “lining the pockets” of anyone, the fees paid
to RMR are used to pay the salaries and operating expenses of RMR’s
staff and offices. CommonWealth’s officers, its accounting staff,
its in-house lawyers, its property acquisition personnel, its
leasing specialists, its investor relations personnel, its office
rent, etc. are all paid by RMR. Almost half the fees paid to RMR
are property management fees which are charged at a rate which is
at or below industry averages for operating a portfolio of
properties as diverse as CommonWealth’s. In fact, because of the
economies of scale provided by RMR to CommonWealth, the overhead,
or “G&A”, and other operating costs of CommonWealth’s
operations are well below REIT industry and peer group averages.
Moreover, during the period between 2007 and 2012, the gross value
of CommonWealth’s properties being managed increased by 49%.
We believe that the Related/Corvex plan for CommonWealth is
short term oriented, reckless and not credible, especially because
of Blau’s and Related’s track record of destroying shareholder
value at publicly owned real estate companies.
Recently, Blau and Meister have published a plan for
CommonWealth in case their hostile takeover succeeds. In summary,
this plan is to operate CommonWealth for short term profits at the
expense of long term shareholder value by: (1) selling
CommonWealth’s stabilized and best performing properties; (2)
taking on as much debt as possible; (3) investing in weak or
underperforming properties until they may be sold; and (4) buying
back CommonWealth shares. We do not believe this plan will produce
the consistent and growing cash flows which are typically expected
by REIT investors. Rather, we believe the Blau/Meister plan would
put at risk CommonWealth’s dividend and investment grade ratings,
and it may eventually destroy all shareholder value.
In the past when Blau and the Related Companies have controlled
publicly owned real estate companies, the Related Companies have
done well, but public shareholders have suffered losses:
- Blau, CEO of the Related Companies,
previously served simultaneously as an officer of the Related
Companies and as chairman and CEO of American Mortgage Acceptance
Corporation (“AMAC”), a publicly traded mortgage REIT. During this
time, AMAC made large subordinated loans to other businesses of the
Related Companies. These loans soon
defaulted, making them worthless, and AMAC declared bankruptcy a
short time later.
- Steven Ross, Chairman of the Related
Companies, and Blau previously served on the board of Centerline
Holding Company (f/k/a Charter Municipal Mortgage Acceptance Co.,
or “CharterMac”). While Ross was on the board (and shortly before
Blau joined), they caused this public company to agree to pay the
Related Companies or its affiliates about $340 million to
internalize management. After this
internalization, CharterMac suffered a spiral of operating losses,
a 98% negative total return to shareholders and was delisted from
the NYSE.
A majority of the replacement trustees proposed by Blau and
Meister are neither “well qualified” nor “truly
independent”.
Blau and Meister are asking shareholders to remove the entire
CommonWealth Board, by written consent, and without cause. To run
CommonWealth if their takeover succeeds, Blau and Meister
originally identified five new trustees who they claim are “well
qualified” and “truly independent”. In fact, most of these proposed
trustees have close ties to Blau and Meister and, in our view, have
questionable qualifications:
- Jim Lozier has been identified as a
replacement trustee for CommonWealth by Blau and Meister. Lozier
was formerly the CEO of Archon Group LP, a subsidiary of Goldman
Sachs which sourced and managed real estate investments for
Goldman’s Whitehall Funds. According to the Wall Street Journal1,
a September 2013 report by Whitehall to investors stated that its
$4 billion fund raised in 2007 has since lost 59% of its value.
Lozier “retired” from Archon in 2012, and is
now employed as a consultant to the Related Companies for fees
Related and Lozier have not disclosed. Lozier has apparently
never before served as an officer or board member of a public
company, and because of his employment by Related he may be
expected to act in Related’s interest.
- James Corl has been identified as a
replacement trustee by Blau and Meister. Corl
is a fund manager who has invested or committed over $100 million
to real estate private equity funds managed by
Related2 and his compensation depends, in part, on the performance
of those funds. Because of this relationship, Corl is not
“truly independent” from Related. Corl has never been a board
member of a public company.
- Kenneth Shea is another replacement
trustee identified by Blau/Meister. Shea was
a colleague of Meister’s during their previous employment at the
Icahn Group. Shea’s only public company board experience is
that he is serving on the board (which is not elected by
shareholders) of the general partner of CVR Refining, LP, a public
limited partnership which is externally managed by a Carl Icahn
controlled entity.
- Edward Glickman is another Blau/Meister
proposed replacement trustee for CommonWealth. Between June 2004
and August 2012, Glickman served as the President and a board
member of Pennsylvania REIT (NYSE: PEI), a REIT that owns retail
properties. During Glickman’s tenure at PEI,
the total return (dividends and share price changes) realized by
PEI shareholders was negative 7.73% compared to the SNL U.S. Retail
REIT index total return of positive 127.6%.
- Peter Linneman, the fifth replacement
trustee identified by Blau/Meister, currently serves on boards of
three other publicly traded companies, including AG Mortgage
Investment Trust (NYSE: MITT), a mortgage REIT that is externally
managed by an affiliate of a real estate private equity fund
manager.
The recent announcement that Sam Zell has agreed to serve as
a Related/Corvex designated replacement trustee does not change
much, if anything.
On February 11, 2014, Blau and Meister announced that they had
enlisted Sam Zell and David Helfand, a long serving Zell
lieutenant, to join their slate of replacement trustees if the
removal consent solicitation succeeds. We believe that Blau and
Meister recruited Zell because their plan and previous slate of
replacement trustee candidates was not winning shareholder support;
but Zell did not come to join Related/Corvex on the cheap.
According to SEC filings, Related and Corvex granted Zell and
Helfand “in the money” options to purchase over four million
CommonWealth shares at prices that were approximately $17 million
below the closing price for CommonWealth’s shares on the day these
options were granted. We believe these options may influence Zell
to support the Blau/Meister short term plan for CommonWealth which
could be detrimental to long term shareholders.
Zell (age 72) is a well-known real estate investor. He is
already serving as the Chairman of four large NYSE listed public
companies. Reportedly, Zell also is an active owner of a number of
international real estate businesses and he is involved in
litigation arising from his sponsorship of the Tribune Company
leveraged buyout and subsequent bankruptcy. Although Blau/Meister
have agreed to appoint Zell as the new Chairman of CommonWealth, it
is unclear exactly how much time he may be willing or able to
commit to this service. The additional compensation which Zell
would receive as Chairman and Helfand would receive as the new CEO
of CommonWealth has also not been disclosed.
CommonWealth’s board and management are executing on a
business plan to create real value and are listening to
shareholders.
Since the end of 2008, the CommonWealth Board has been executing
a business plan to transition CommonWealth from a REIT that
primarily owned suburban office and industrial properties into a
REIT that primarily owns Class A office buildings located in
central business districts (CBDs) of cities across the U.S. Between
2009 and 2011, CommonWealth bought CBD office towers at bargain
prices. Simultaneously, and especially starting in 2012,
CommonWealth has been divesting older, weaker performing, suburban
properties. Now, just as this multi-year business plan is about to
bear its full fruit, Blau, Meister and their associates are
attempting to seize control of CommonWealth for their own purposes
without paying you anything for your shares.
During the past year, CommonWealth’s Board and management have
initiated a serious and sincere effort to transform CommonWealth’s
governance into a “best in class” model. The Board has committed to
several governance enhancements, including (i) declassifying the
Board, (ii) eliminating the shareholders rights plan, (iii)
expanding the Board to 75% Independent Trustees and designating a
Lead Independent Trustee and (iv) streamlining the procedures for
shareholders to propose actions and make trustee nominations. The
Board has also worked with an independent executive search firm to
add two new trustees who have extraordinary qualifications and who,
unlike the Blau/Meister nominees, are truly independent.
Please carefully consider your interests as
aCommonWealth shareholder.
Please sign and date the WHITE consent revocation card enclosedwith
this letter and mail it in the enclosed postage prepaid
envelope.
Please discard the Related/Corvex gold
card.
Thank you for taking the time to read this letter and thank you
for your support.The CommonWealth REIT Board of Trustees
Ronald ArtinianWilliam LamkinAnn LoganJoseph
MoreaAdam PortnoyBarry PortnoyFrederick Zeytoonjian
CommonWealth REIT is a real estate investment trust that
primarily owns office properties located throughout the United
States. CWH is headquartered in Newton, MA.
WARNING REGARDING
FORWARD LOOKING STATEMENTS
THIS PRESS RELEASE INCLUDES FORWARD LOOKING STATEMENTS WITHIN
THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
AND OTHER SECURITIES LAWS. THESE FORWARD LOOKING STATEMENTS ARE
BASED UPON CWH'S PRESENT BELIEFS AND EXPECTATIONS, BUT THEY ARE NOT
GUARANTEED TO OCCUR AND MAY NOT OCCUR FOR VARIOUS REASONS,
INCLUDING SOME REASONS BEYOND CWH’S CONTROL.
ADDITIONAL INFORMATION
REGARDING THE CONSENT SOLICITATION
CWH, its Trustees and certain of its executive officers, and
Reit Management & Research LLC and certain of its directors,
officers and employees may be deemed to be participants in the
solicitation of consent revocations from shareholders in connection
with the solicitation being conducted by Related/Corvex. On January
29, 2014, CWH filed a definitive consent revocation statement with
the SEC in response to the Related/Corvex solicitation and has
mailed the definitive consent revocation statement and form of
WHITE consent revocation card to each shareholder entitled
to deliver a written revocation in connection with the consent
solicitation. SHAREHOLDERS ARE URGED TO READ THE CONSENT REVOCATION
STATEMENT FILED WITH THE SEC, AND ANY AMENDMENTS OR SUPPLEMENTS
THERETO AND ANY OTHER RELEVANT DOCUMENTS THAT CWH MAY FILE WITH THE
SEC WHEN THEY BECOME AVAILABLE, BECAUSE THEY CONTAIN IMPORTANT
INFORMATION. Additional information regarding the identity of the
potential participants and their direct or indirect interests, by
share holdings or otherwise, is set forth in the definitive consent
revocation statement filed by CWH with the SEC in connection with
the solicitation of revocations of consents.
Shareholders may obtain free of charge copies of the definitive
consent revocation statement and any other documents filed by CWH
with the SEC in connection with the Related/Corvex solicitation at
the SEC’s website (http://sec.gov), at CWH’s website
(http://cwhreit.com) or by requesting these materials from Timothy
Bonang, by phone at (617) 796-8222, or by mail at Two Newton Place,
255 Washington Street, Newton, MA 02458 or by requesting materials
from the firm assisting CWH in the solicitation of consent
revocations, Morrow & Co., LLC, toll free at (800) 276-3011
(banks and brokers call collect at (203) 658-9400).
1 See, Wall Street Journal,
“Goldman Real-Estate Play Skirts Ban on Volcker”, by Craig Karmin
and Justin Baer, December 23, 2013, Page C1.
2 See, PERE, “Singuler Guff closes on $630m opportunistic FoF”,
by James Condois, January 11, 2012.
Media:Joele Frank Wilkinson Brimmer KatcherAndrew
Siegel/Jonathan Keehner212-355-4449orInvestor:CommonWealth
REITTimothy Bonang, 617-796-8222Vice President, Investor
RelationsorJason Fredette, 617-796-8222Director, Investor
Relationswww.cwhreit.com
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