I don’t know how much any of you have been following this, but being in the REIT industry myself, this has been big news. REITs are very, very rarely part of hostile takeovers or proxy fights. The fact that CommonWealth REIT (CWH) was and lost is pretty groundbreaking. Here is some background:
Yesterday, Corvex (an activist hedge fund run by Keith Meister, Carl Ichan’s former right hand man) unseated the entire CWH board of trustees after getting 81% of shareholders to vote in favor of the board removal. Corvex’s complaint was how CWH was managed which they felt was causing CWH to grossly underperform its peers.
CWH is a publicly traded REIT that focuses on CBD assets across the US and has about $6.5 billion in assets. It is currently managed by Reit Management & Research (private company) who performs the property management, Asset Management, acquisition, accounting, etc. RMR receives a management fee based on the acquisition value of the asset as well as a base management fee.
So why does Corvex have beef with this arrangement? Well RMR is wholly owned by two people, Adam and Barry Portnoy but CWH is a public company. There is an EXTREME incentive for the Portnoys to buy as many assets as possible, without regard for performance, because not matter what, they will get their management fee. Corvex claims the Portnoys have received over $700 million in management fees over the decade while the stock of CWH has only returned 7%. What is worse, RMR and the Portnoys own basically no shares of CWH even though they started and run the REIT! Talk about no skin in the game!
RMR also manages 4 other public REITS. Corvex states that there are only 6 public REITs in the entire US who have the management structure, and RMR manages 5 of them. The entire board is slated to be removed in the next few weeks and a new board voted in over the ensuing months. It will be interesting to see if other activists go after the other RMR REITS. Most interesting will be Select Income REIT (SIR) which his 40% owned by CWH.
Stay tuned to see if Corvex can truly drive value to the CWH shareholders.
I think that based on what you cited, it's pretty obvious that management was not working in best interests of shareholders. I think that this screens a good buy because of Corvex's and Zell's involvement. Thoughts?
What is interesting is that CommonWealth was shopping around two large office portfolios 1-2 months ago (excess of 3m SF) to make acquisition entities less interested, since the primary reason of the Price/NAV differential was due to in-house management issues.
Portnoys have been pulling this crap for awhile. Dont know why it took so long to kick them to the curb. These guys got mad greedy, if they simply would have kept a manageable fee structure, they could have continued to collect cash and keep their head low. They got greedy and got burnt for it.
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