NEW YORK, Feb. 26, 2013 /PRNewswire/ -- Corvex
Management, LP ("Corvex") and Related Fund Management, LLC
("Related") announced today that investment funds managed by them
collectively own approximately 9.8% of the outstanding common
shares of CommonWealth REIT ("CWH" or the "Company"). Corvex and
Related believe that CWH's portfolio of real estate assets trade at
a substantial discount to fair value due to a misalignment of
incentives between the Company and its external advisor, REIT
Management & Research LLC and track record of underperformance.
Corvex and Related have released an open letter to the Company's
Board of Trustees demanding that the Company immediately cease a
value destroying equity offering and debt repurchase, and enter
into discussions with Corvex and Related regarding maximizing
long-term value for all CWH shareholders. They have also publicly
filed a Schedule 13D, including a detailed presentation outlining a
clear path to value creation for CWH. Based on a comprehensive
property-by-property valuation analysis, Corvex and Related believe
that CWH's NAV was approximately $40
per share as of February 25, 2013,
which is generally consistent with CWH's book value of
approximately $37 per share, as
opposed to the closing price of $15.85 on February 25,
2013. Corvex and Related believe that if the Company
implemented, among other changes, an internal management structure,
basic operating performance enhancements and a more
shareholder-friendly capital allocation policy, CWH could achieve a
target price of more than $50 per
share over a two year period.
If the Board fails to adequately respond, Corvex and Related are
prepared to seek the removal of the Board so that it may be
replaced with five truly independent trustees. Corvex and Related
would also be prepared to acquire all the outstanding shares at a
significant premium to the current market value. Accordingly,
they demand that the Company not proceed with this dilutive share
issuance.
The letter follows:
Board of Trustees
CommonWealth REIT
Two Newton Place
255 Washington Street
Newton, MA 02458-1634
February 26, 2013
Dear Members of the Board of Trustees:
Corvex Management, LP ("Corvex") and Related Fund Management,
LLC ("Related") separately manage investment funds that
collectively own approximately 9.8% of the outstanding common
shares of CommonWealth REIT ("CWH" or the "Company"). We have deep
industry experience and have spent considerable time with our
advisors analyzing CWH's assets and corporate structure. We
are publicly filing today a detailed presentation outlining a clear
path for maximizing value for all of CWH's shareholders.
We believe that the Company's real estate assets are
significantly undervalued due to the misalignment of incentives
between the Company and its externally advised management
structure, and track record of underperformance. Based on a
detailed property-by-property valuation analysis, we believe that
CWH's net asset value as of February 25,
2013 was $40 per share, as
compared with the current per share price of $15.85. We believe that if the Company
implemented, among other changes, an internal management structure,
basic operating performance enhancements and a more
shareholder-friendly capital allocation policy, CWH could achieve a
target price of more than $50 per
share over a two year period.
We believe that CWH's shares trade at such a large discount
mainly because the Company's externally advised management
structure skews incentives, reduces CWH's cash flow through
excessive fees and impairs the Company's valuation. We note
that, according to public filings, over the last five years the
Company has paid out over $336
million in management fees to REIT Management & Research
LLC ("RMR") – representing over 20% of CWH's market
capitalization as of the close of business on February 25, 2013. In addition, these
fees are based primarily on historical costs, and reward management
for acquisitions regardless of financial returns or strategic
rationale. We also note that CWH's management and Board own very
little stock in CWH (less than 1% of the Company) and their
misaligned incentives have led to a strategy that has sought to
maximize management fees for RMR at the expense of CWH's
shareholders.
Furthermore, the Company's poor corporate governance exacerbates
the inherent conflicts of interest between management and
shareholders. Among other things, the Company has: a classified
board; a "poison pill" triggered by the acquisition of only 10% of
CWH's outstanding shares, with a "slow hand" provision; and
questionable trustee independence. This has insulated management
and further misaligned the interests of management and its
shareholders. ISS has also taken notice, recommending against CWH's
incumbent board trustees last year.
The misalignment of interests and poor governance are all made
readily apparent by the announcement on February 25, 2013 that CWH has commenced an
underwritten public offering of up to 31,050,000 common shares
(including the anticipated over-allotment option), the proceeds of
which will be used to repurchase up to $450
million of certain of the Company's outstanding investment
grade unsecured senior notes, to repay other debt and for "general
business purposes". The proposal to raise equity when the stock
trades at such a large discount to its intrinsic value is absurd,
and more than anything speaks to the incredible disconnect between
the goals of CWH shareholders and the Board and RMR. We also
note that our $40 per share estimate
of NAV is generally consistent with CWH's book value of
approximately $37 per share, and are
astounded that the Board of Trustees would consider issuing equity
at a time when the shares are trading at $15.85 which is 43% of their own estimate of
minimum fair value.
Based on our above analysis, the proposed offering would
represent a massive dilution to existing shareholders that would be
highly destructive of shareholder value. In addition, we question
why the Board would repurchase investment grade debt on highly
attractive terms at a large make-whole premium with no near term
maturities or liquidity issues. It appears that the external
manager's goal is to grow the Company's equity base, increase its
acquisition capacity and ultimately increase management fees – all
at the expense of creating value for CWH shareholders. Instead of
this approach, the Board should be selling assets into the market
and repurchasing shares.
We demand that the Board of Trustees immediately cease
this ill-advised offering and debt repurchase and engage in
frank and open discussions with us regarding CWH's business and
strategy. If the Board of Trustees proceeds with a course of
action that is clearly destructive to CWH's shareholders, we intend
to hold you and CWH's management responsible for this and other
potential breaches of your fiduciary duties.
We are filing today a detailed presentation outlining a clear
path for value creation at CWH and believe the following immediate
steps must be taken to close the massive discount between the
public market value and NAV:
- Internalization of management structure, adoption of a market
cost structure, and alignment of management compensation with
shareholder returns;
- Replacement of existing Charter and Bylaws to conform to ISS
and Glass Lewis best practices;
- Appointment of three new independent trustees;
- Cessation of all related party asset sales;
- Cessation of all acquisition and development activity until
CWH's stock price exceeds its NAV; and
- Use excess cash flow and proceeds from asset sales to buy back
stock or delever until the Company's stock price exceeds its
NAV.
If necessary, we are prepared to seek the removal of the entire
Board of Trustees though an action by written consent so that the
Board may be replaced with Trustees that will be responsive and
representative of the interests of all of CWH's shareholders and
not just its management. Furthermore, Corvex and
Related would also be prepared to acquire all the outstanding
shares at a significant premium to the current market value.
Accordingly, we demand that the Company not proceed with this
dilutive share issuance.
Sincerely,
Keith Meister
Corvex Management LP
712 Fifth Avenue, 23rd Floor
New York, New York 10019
(212) 474-6700
Jeff T. Blau
Related Fund Management, LLC
60 Columbus Circle
New York, New York 10023
(212) 421-5333
About Corvex Management, LP
Corvex Management, LP is
an investment firm headquartered in New
York, New York that engages in value‐based investing across
the capital structure in situations with identifiable catalysts.
Corvex was founded in March 2011 and
follows an opportunistic approach to investing with a specific
focus on equity investments, special situations and distressed
securities largely in North
America.
About Related Fund Management, LLC
Related Fund
Management, LLC is an affiliate of Related Companies, one
of the most prominent privately-owned real estate firms in
the United States. Formed 40 years
ago, Related is a fully-integrated, highly diversified industry
leader with experience in virtually every aspect of development,
acquisitions, management, finance, marketing and sales. Related's
existing portfolio of real estate assets, valued at over
$15 billion, is made up of
best-in-class mixed-use, residential, retail, office and affordable
properties. For more information about Related Companies please
visit www.related.com.
Copies of the detailed presentation are included in the 13 D
filing and available on EDGAR. Copies can also be obtained by
contacting Rupal Doshi of Corvex at
(212) 474-6750 or rdoshi@corvexcap.com or Joanna Rose of Related at (212) 801-3902 or
jrose@related.com
SOURCE Related Fund Management, LLC