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
NEWTON, Mass.--(BUSINESS WIRE)--
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 WHITEConsent
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 Artinian
William Lamkin
Ann Logan
Joseph Morea
Adam
Portnoy
Barry Portnoy
Frederick 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 Katcher
Andrew
Siegel/Jonathan Keehner, 212-355-4449
or
Investor:
CommonWealth
REIT
Timothy Bonang, 617-796-8222
Vice President, Investor
Relations
or
Jason Fredette, 617-796-8222
Director,
Investor Relations
Source: CommonWealth REIT