Highlights Substantial Risks That May Result
from the Related/Corvex Consent Solicitation and Notes
Related/Corvex Track Records of Destroying Shareholder
Value
Recommends Shareholders Support the CWH
Board and Management By Voting the WHITE Consent Revocation Card Today
CommonWealth REIT (NYSE:CWH) today mailed the following letter
to its shareholders:
March 11, 2014
To the Shareholders of CommonWealth REIT:
Protect The Value Of Your Investment In CommonWealth
REIT. Please Sign, Date And Mail The WHITE Consent Revocation Card Enclosed With This
Letter.
Your vote is critical to your investment in CommonWealth REIT
(“CWH”).
- The CWH
Business Plan Is Producing Real Value For
Shareholders. On almost every financial and
operating metric, the fourth quarter 2013 results exceeded
expectations.
- CWH Has Made
Real And Significant Improvements To Its
Governance. The changes we have made have placed
CWH among the “best in class” of peer companies on matters of
governance, and our management’s incentives are aligned with
shareholders’ interests.
- Related/Corvex
Have Track Records Of Destroying Shareholder
Value. Both Keith Meister, the CEO of Corvex, and
Jeff Blau, the CEO of the Related Companies, have, in our view,
appalling track records of destroying shareholder value at public
companies while making money for themselves.
- The Risks To
Shareholder Value That May Result From Wholesale Removal Of The
Entire CWH Board Are Real And Substantial. If the
entire Board is removed, CWH faces the possibility of debt
downgrades and defaults, business interruption and CWH’s dividend
may be suspended and/or in jeopardy.
We hope you will take the time to read this letter, consider the
facts presented and make an independent judgment. Even if you have
already voted the gold card, you have the right to change your vote
by returning a later dated WHITE Consent Revocation Card.
Please Sign, Date and Mail the enclosed WHITE Consent Revocation Card.
Related Fund Management, LLC and Corvex Management LP
(“Related/Corvex”) have recently written to you soliciting your
consent to remove the CWH Board without cause and without electing
any replacement Trustees. Your decision is critical to the future
of CWH.
If you use reports from proxy advisory firms in your analysis of
Related/Corvex’s solicitation, please note that the proxy advisory
firms failed to take full account of the progress CWH has made in
implementing its business plan and in changing its governance and
management compensation, and the real and substantial risks
inherent in the Related/Corvex solicitation. This letter seeks to
summarize the key facts we believe all shareholders should be aware
of when making a decision regarding the consent solicitation.
I. The CWH Business Plan Is Producing Real Value For
Shareholders.
CWH has been executing a multi-year business plan to invest in
high quality central business district (“CBD”) properties and to
divest older, suburban office and industrial properties that is
producing real value for shareholders. On
almost every financial and operating metric, the 2013 fourth
quarter results exceeded expectations:
- $0.63/share Normalized Funds From
Operations (FFO)1 vs. Wall Street consensus estimate of
$0.54/share2.
- 8.4% same property cash NOI growth
(year-over-year).
- 81.4% dividend payout of cash available
for distribution (CAD) ratio (based on trailing twelve months
CAD).
- 1.1 million square feet of leasing
activity in 4Q13 bringing annual total to approximately 5.2 million
square feet.
- 89.6% occupancy vs. 83.4% occupancy for
the nationwide office market.3
- + 8.1% higher average rental rates for
space leased in the 4Q13 vs. prior leases for the same space (+
3.1% on a cash basis).
By contrast, the plan for CWH proposed by Related/Corvex is to
sell CWH’s best performing properties, take on more debt and then
use the combined sale and debt proceeds to buy back shares. Now
that CWH’s multi-year business plan is starting to produce long
term value for shareholders, Related/Corvex are trying to seize
that value for short term trading profits, in our view. This scheme
is not likely to deliver increasing cash flow streams REIT
investors typically seek and would put at risk the security of
CWH’s dividend and its investment grade ratings.
II. CWH Has Made Real And Significant Improvements To
Its Governance.
During the past year, CWH’s Board has made real and significant
changes to its governance and enhanced the alignment of
management’s financial incentives with shareholders’ interests.
These changes have made CWH among the “best in class” of peer
companies on matters of governance and alignment of management
compensation with shareholders’ interests, as follows:
a. Board Composition: CWH recently
added two highly qualified, new Independent Trustees, Ann Logan and
Ronald Artinian. These candidates were identified by the executive
search firm Korn/Ferry International and neither has any prior
relationship with CWH, its other Trustees or CWH’s manager. The
Board’s Nominating and Governance Committee (comprised solely of
Independent Trustees) is continuing to work with Korn/Ferry to
identify additional candidates to increase the ratio of Independent
Trustees on the Board to at least 75%.
b. Board Structure And Guidelines:
The Board is committed to declassifying the election cycle for
Trustees starting at the 2014 Annual Meeting. Assuming this
amendment to the CWH Declaration of Trust is approved by
shareholders, one-third of the Trustees will be elected in 2014,
two-thirds will be elected in 2015 and the entire Board will be
subject to annual election beginning in 2016. The Board also
established guidelines requiring minimum share ownership by
Trustees of approximately $500,000 worth of CWH shares.
c. Simplified Path For Shareholder Actions
At Annual Meetings: The Board has amended CWH’s Bylaws to
make it easier for shareholders to make Trustee nominations and
proposals at annual meetings, including lowering the share
ownership requirement to $2,000 worth of common stock for one year
and simplifying all informational requirements. These changes are
already in effect for the June 13, 2014 Annual Meeting, and the
window for shareholder nominations is currently open through March
24, 2014. CWH already has a majority vote requirement for
uncontested Trustee elections, and the Board has resolved to
recommend that shareholders vote at the 2014 Annual Meeting to
change the voting standard for contested elections to a
plurality.
d. Board Leadership: The CWH
Independent Trustees are committed to designating a Lead
Independent Trustee with clear and robust responsibilities. The
selection of a Lead Independent Trustee will be decided solely by
the Independent Trustees after the Board expansion is complete,
which is expected to occur at or before the June 13, 2014 Annual
Meeting.
e. Shareholder Rights Plan: The
Board is committed to terminating CWH’s shareholder rights plan,
which is scheduled to expire on October 17, 2014. The Board has
already eliminated the so called “dead hand” provision that
prevented redemption of rights by a successor Board.
f. Management Compensation
Alignment: The Board has substantially restructured the
management arrangement between CWH and its manager, Reit Management
& Research LLC (“RMR”), to further align the economic
incentives for management with shareholders’ interests, while at
the same time maintaining CWH’s historical low overhead costs.
RMR’s fee is now closely tied to the total returns realized by
shareholders and a substantial portion of the fee is now paid in
restricted shares that vest over a multi-year period.
III. Related/Corvex Have Track Records Of Destroying
Shareholder Value.
Both Keith Meister, Founder and Managing Partner of Corvex, and
Jeff Blau, the CEO of the Related Companies, have, in our view,
appalling track records of destroying shareholder value at public
companies while making money for themselves. We believe these track
records foretell what may occur at CWH if Related/Corvex succeed in
taking control.
1. Meister/Corvex’s Destruction Of Long
Term Shareholder Value At ADT: Keith Meister’s Corvex Fund
has a history of destroying long term shareholder value. For
example: Shortly after Tyco International spun out ADT Corporation
in late 2012, Meister/Corvex began buying shares in ADT in the mid
- $30 per share range. After announcing a greater than five percent
ADT ownership position, Meister published a presentation claiming
that ADT could be worth over $60 per share and began to agitate for
ADT to borrow money and buy back shares. Unfortunately, under
pressure from Meister and to avoid the threat of a costly and
disruptive proxy contest, ADT added Meister to its board and
implemented his scheme. During 2013, ADT took on about $1.7 billion
of new debt and aggressively bought shares as the share trading
price increased. Then, in November 2013, ADT announced that Meister
was leaving the board and ADT would buy substantially all of
Meister/Corvex’s shares at $44.01 per share. Today, in part because
of the costs associated with its new debts and ratings downgrades,
ADT’s shares now trade at about $30 per share or thirty percent
(30%) below the share price prior at which Meister sold out.4
Meister/Corvex’s activities at ADT closely parallel his actions
at CWH. In early 2013, Related/Corvex announced a greater than five
percent CWH ownership position and Meister/Corvex published a
presentation claiming that the shares should be worth $35 or even
$44 per share while they were trading at about $22 per share.5
Meister has also advocated for CWH to increase debt and buy back
shares. With your help, CWH shareholders can stop Meister from
repeating his disastrous ADT scheme at CWH.6
2. Jeff Blau And The Related Companies
Have A Long Track Record Of Destroying Shareholder Value When They
Have Controlled Publicly Owned Real Estate Companies: The
destruction of shareholder value by Jeff Blau and his colleagues at
the Related Companies whenever they have controlled publicly owned
real estate companies is well established.
Jeff Blau, the CEO of the Related Companies, previously served
simultaneously as an officer of The Related Companies and as
Chairman and CEO of American Mortgage Acceptance Company (“AMAC”),
a publicly owned REIT. While at AMAC, Blau caused AMAC to make
large, subordinated, non-recourse loans to Related affiliates.
These loans quickly defaulted, AMAC filed for bankruptcy shortly
thereafter, and all public shareholder value was lost. Despite this
loss to AMAC shareholders, Blau’s affiliates kept the loan
proceeds.
While Steve Ross, the Chairman of the Related Companies, served
on the board of Centerline Holding Company (f/k/a “CharterMac”), a
publicly owned real estate company, and shortly before Jeff Blau
joined that board, Ross and Blau caused CharterMac to agree to pay
the Related Companies or its affiliates about $340 million to
internalize management. Shortly thereafter, CharterMac suffered a
spiral of operating losses, a 98% negative total return to public
shareholders and CharterMac’s shares were delisted from the
NYSE.
3. Sam Zell Needed A Special Incentive
Payment Worth More Than $17 Million To Join The Related/Corvex
Campaign: Related/Corvex originally identified a slate of
five individuals they proposed to nominate as CWH replacement
trustees at a special shareholders’ meeting if their consent
solicitation succeeds. A majority of this Related/Corvex slate have
close financial or personal ties to Related/Corvex: one is a paid
consultant to Related, one is an investor with Related and one is a
former colleague of Meister’s at the Icahn Group.
Related/Corvex then recruited Sam Zell, a well-known real estate
investor, to serve as a trustee nominee and potential future CWH
Chairman. But Zell did not agree to lend his name to the
Related/Corvex campaign without first securing for himself a
special financial deal that, in our view, is intended to encourage
him to support the short term agenda of Related/Corvex at the
expense of long term shareholder value.
To induce Zell to join their hostile takeover, Related/Corvex
granted Zell options to purchase over four million CWH shares at
“in the money” prices which were approximately $17 million below
the trading price on the day the options were granted. Also, during
a recent television interview, Zell was unable to remember that he
is currently the chairman of four large NYSE companies and several
private businesses, and he was unable to provide a credible
explanation of his trading in CWH shares in the days immediately
before it was publicly announced that he would join
Related/Corvex’s campaign. Because of the way Zell is being
compensated and because we believe he is unlikely to have much, if
any, time to devote to CWH, Zell may be motivated to support the
Related/ Corvex short term plan were he elected to CWH’s Board.
IV. The Risks To Shareholder Value That Would Result
From Removal Of The Entire Board Are Real And Substantial.
If the Related/Corvex consent solicitation to remove the entire
CWH Board by written consent and without cause succeeds, CWH’s
officers are required to call a special meeting of shareholders
where all shareholders will be entitled to make nominations and
solicit proxies. This process is likely to take at least 60-90
days. The removal of an entire Board of a public company by written
consent without cause and without the simultaneous election of a
replacement board is unprecedented – for good reasons.
i. Ratings Downgrades And Debt
Defaults: Moody’s has recently announced that it has placed
CWH’s investment grade ratings under review for possible downgrade
because of the activities of Related/Corvex. The proxy advisory
firms have acknowledged that credit ratings downgrade are “a
credible risk” if the Related/Corvex solicitation succeeds and that
the removal of the entire Board would be an “event of default”
under CWH’s bank loan agreements. Related/Corvex have attempted to
discount these risks by making public statements that they will
offer to purchase 51% of CWH’s outstanding bank loans to prevent a
default.
There is $735 million currently outstanding under CWH’s bank
lines; the total committed amounts of these lines is $1.25 billion.
Under CWH’s bank agreements, waiver of a default requires a two
thirds vote of the committed amounts. Shareholders should consider
that about one year ago Related/Corvex indicated that they were
interested in purchasing all of CWH’s shares at a premium valuation
– again, through public and non-binding statements; however, when
the Board pressed for the financing details and a firm offer that
would have been actionable by the Board and shareholders,
Related/Corvex withdrew their “offer” and, instead, began the
current campaign to seize control of CWH without paying
shareholders anything. The past public “offer,” which was
withdrawn, calls into question whether Related/Corvex are willing
to finance their current purported offer to purchase CWH’s loans.
Even assuming that Related/Corvex in fact make a real offer for 51%
of the outstanding debt, it is difficult to understand why lenders
would accept 51% of the amounts due when they would be entitled to
100%, especially after the debt ratings are downgraded.
ii. Regulatory Compliance Issues:
If the Related/Corvex consent solicitation succeeds, CWH will be
out of compliance with SEC and NYSE rules for publicly traded
securities until a new Board is installed in about 60-90 days.
Management will do what it can to prevent the CWH shares from being
de-listed and to allow share trading to continue. However,
shareholders should consider that until a new Board is installed,
there would be no independent Audit Committee or Board to sign off
on and file required public company financial reports and other
filings.
iii. Dividends May Not Be Paid: We
believe the Related/Corvex plan for CWH will put at risk CWH’s
steady cash flow used to pay dividends. In any event, under
applicable law only the CWH Board can declare and pay dividends.
Accordingly, if the entire CWH Board is removed by written consent
and without cause, then dividends to CWH common and preferred
shareholders will not be paid while there is no Board in place.
iv. Business Disruption: In our
view, one of the most troublesome aspects of Related/Corvex’s
consent solicitation is the cavalier way it treats the serious
business consequences that may adversely impact shareholder value
if the entire Board is removed by written consent and without
cause. Undoubtedly competitor landlords and some tenants may try to
take advantage of uncertainty at CWH. During 2013, CWH entered over
370 leases for approximately 5.2 million square feet. The 2014 run
rate is expected to be about the same. It seems that Related/Corvex
either do not understand CWH’s business or they have decided to
ignore the substantial risk to shareholder value that may result
from any disruption of CWH’s business by the unprecedented actions
they are pursuing to take control of CWH for their own
purposes.
Please consider the facts presented above when you are
evaluating the Related/Corvex arguments. We hope you will agree
with us that the Related/Corvex consent solicitation is an attempt
to take control of CWH without paying you a premium for the value
of that control. Their reckless plan to leave CWH without a Board
for 60-90 days needlessly puts your investment at risk. Please
Sign, Date And Mail The Enclosed WHITE
Consent Revocation Card Today.
Thank you for taking the time to read this letter.
The CWH 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 DEFINITIVE 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).
www.cwhreit.com
1 Reconciliation available on CWH’s Fourth Quarter 2013
Supplemental Operating and Financial Data, filed on Form 8-K on
February 27, 2014.2 Source: Thomson First Call.3 Source: Jones Lang
LaSalle.4 Calculated based on ADT’s closing price of $30.85 per
share on March 7, 2014 and price of $44.01 per share at which
Meister sold substantially all of his ADT shares in November 2013.5
“The Case for Change Now at CommonWealth”, Slide 7, Related/Corvex
presentation published on April 18, 2013.6 For more information
about Meister/Corvex’s activities at ADT see Al Lewis, ADT Loses
Peace of Mind After Meister’s Corporate Raid, MARKET WATCH (Feb. 5,
2014),
http://www.marketwatch.com/story/adt-loses-peace-of-mind-after-meisters-corporate-raid-2014-02-05;
and Herb Greenberg, Why ADT is Appalling, THE STREET (Jan. 30,
2014),
http://www.thestreet.com/story/12286889/l/greenberg-why-adt-is-appalling.html.
A Maryland Real Estate Investment Trust with transferable shares
of beneficial interest listed on the New York Stock Exchange. No
shareholder, Trustee or officer is personally liable for any act or
obligation of the Trust.
Media:Joele Frank Wilkinson Brimmer KatcherAndrew
Siegel/Jonathan Keehner, 212-355-4449orInvestor:CommonWealth
REITTimothy Bonang, 617-796-8222Vice President, Investor
RelationsorJason Fredette, 617-796-8222Director, Investor
Relations
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