Shareholders of CommonWealth REIT have voted to oust its entire board of trustees, setting the stage for Sam Zell and deputy David Helfand to take over running the Newton, Mass. company.
For about a year, hedge fund Corvex Management, led by Carl Icahn disciple Keith Meister, and a unit of real estate firm Related Companies, which together control about 9.6% of CommonWealth's shares, have been attacking father-son duo Barry and Adam Portnoy, who control CommonWealth through an external management company, RMR. The activists yesterday announced that they have presented consents representing holders of 81% of the shares of the Newton-based REIT, who agree to oust the current board.
“The shareholders have exercised their rights and we look forward to working with the Trustees in the coming days to arrange for an orderly transition process that best protects the interests of all shareholders. We will immediately reach out to the Trustees to begin these discussions,” Meister of Corvex and Jeff Blau, chief executive of Related, said in a statement.
The companies argued that the Portnoys, both members of CommonWealth's now lame duck board of trustees, ran the company for their own benefit at shareholder expense, including spinning off Select Income REIT and a collection of strong Hawaiian assets in 2012. For most of 2013, the fight played out in arbitration. After Related and Corvex rejected an offer from CommonWealth's board to add representatives to its current roster, the battle moved into the hands of shareholders. CommonWealth now has five business days (until March 25) to have the written consents inspected and the results confirmed.
In an interview last May, Adam Portnoy told my colleague Steve Schaefer that Corvex and Related were opportunists trying to take advantage of a weakened on a CommonWealth. "I think they’re using the guise of corporate governance to take on a company in a tough space going through a transition,” he said.
In a presentation to investors March 12, Corvex and Related pointed out that from 2007 to 2013, CommonWealth shares declined 68% but management fees paid to RMR rose 40%. Zell, who only recently joined the fight, has said he is stepping in because he considers REITs his legacy and does not like to see them trashed.
Corvex and Related have proposed a slate of board candidates led by Zell as chairman and Helfand, co-president of Zell's Equity Group Investments, as CEO. The men were granted an option to acquire up to 4 million shares from Corvex and Related if the nomination is adopted.
It's not clear how quickly the companies can unwind the management contracts for the Portnoy firm, but shares jumped this morning on the news. Related and Corvex have said that the share price could be $40 per share by end of 2015, but that it will take getting out of those management contracts to get to full value.
