CommonWealth REIT CWH today responded to recent actions by Related Fund
Management, LLC and Corvex Management LP's (together, “Related/Corvex”) in
their effort to take control of CWH.
Within the last week, Related/Corvex have published their business plan for
CWH. In summary, the Related/Corvex business plan appears to be to operate CWH
like a real estate opportunity fund, including: (1) selling CWH's best
performing, stabilized assets, (2) increasing leverage, (3) investing in CWH's
most challenged assets, and (4) buying back CWH common shares. This business
plan will not produce consistent and growing cash flow. Rather, it will put at
risk CWH's common share dividend and CWH's investment grade debt ratings, and
it is not a business plan which creates shareholder value for a publicly owned
REIT.
The Related/Corvex business plan for CWH is also not credible because of The
Related Companies' abysmal track record of operating publicly owned real
estate companies. When The Related Companies have controlled publicly owned
real estate companies in the past, The Related Companies have done well, but
public shareholders have not. For example, when the principals of The Related
Companies controlled American Mortgage Acceptance Company, or AMAC, and
Centerline Holding Company (f/k/a Charter Municipal Mortgage Acceptance Co.,
or “CharterMac”), it ended very badly for shareholders with a bankruptcy and
de-listing from the New York Stock Exchange (“NYSE”), respectively.
In a letter to the CWH Board, Related/Corvex recently acknowledged that their
efforts to remove the entire CWH Board by written consent, and without cause,
may result in harm to CWH and its shareholders, triggering debt defaults,
rating agency downgrades, and violating NYSE and Securities and Exchange
Commission (“SEC”) rules for public companies. Rather than accepting the
invitation to Keith Meister of Corvex to join the CWH Board and working
constructively for the benefit of all CWH shareholders, Related/Corvex have
proposed that the Board either (1) disenfranchise other shareholders or (2)
ignore the mandate of shareholders. The CWH Board rejected both of these
proposals because they will deprive shareholders of their rights under CWH's
Declaration of Trust and violate rules established by the Arbitration Panel.
The letter to Related/Corvex from the CWH Board rejecting their proposals
dated February 3, 2014 and the letter to the CWH Board from Related/Corvex
dated January 21, 2014 are both attached to this press release below.
Recently, Related/Corvex also publicly identified their handpicked slate of
five individuals to serve as trustees for CWH. Contrary to their claim that
these nominees are “truly independent”, a majority of these nominees have
historical and continuing strong ties to Related/Corvex, including being paid
consultants to and investors in The Related Companies or its affiliates. CWH
believes that the close ties of these nominees to Related/Corvex and the
recent attempt to disenfranchise other shareholders clearly reveal
Related/Corvex's continued efforts to take control of CWH for their own
benefit.
Adam Portnoy, Managing Trustee and President of CWH, made the following
statement concerning Related/Corvex's recent actions:
“We believe it is important for shareholders to know that, despite their
claims to be acting in the best interests of all shareholders,
Related/Corvex's recent actions only reinforce that they are using the veil of
corporate governance to pursue control of CWH for their own benefit. We
believe that Related/Corvex's handpicked slate of trustees will work on behalf
of Related/Corvex rather than all CWH shareholders. We also believe that
Related's business plan for CWH is not in the best interests of shareholders
and that shareholders are likely to experience substantial losses if
Related/Corvex gain control of CWH, similar to what has happened when The
Related Companies controlled other publicly owned real estate companies.”
“We look forward to meeting with shareholders over the coming weeks to discuss
how CWH's Board and management are engaged on a path to deliver superior
results for CWH shareholders. We also look forward to correcting the many
mischaracterizations Related/Corvex have made about CWH, its Board and its
manager.”
Response Letter Sent to Related/Corvex from CWH Board dated February 3, 2014
February 3, 2014
Mr. Jeff T. Blau
Related Fund Management LLC
60 Columbus Circle
New York, NY 10023
Mr. Keith Meister
Corvex Management LP
712 Fifth Avenue, 23^rd floor
New York, NY 10019
Dear Messrs. Blau and Meister:
The Board has reviewed your letter of January 21, 2014 which acknowledges the
disruptions to CommonWealth's business that may result from the Related/Corvex
consent solicitation. The Board agrees that your attempt to take control of
CommonWealth by removing the entire Board by written consent, without cause,
may harm shareholders' interests. However, the Board believes that neither of
the suggestions in your letter present appropriate or effective mitigation
options.
The Board cannot agree to allow Related/Corvex to pursue election of your
handpicked slate by written consent. The CommonWealth Declaration of Trust
provides that, if all existing Trustees are removed, new trustees are to be
elected at a special meeting of shareholders at which other shareholders would
have the opportunity to make nominations. Your suggestion that Related/Corvex
should be permitted to elect its handpicked slate of trustees by written
consent simultaneously with the removal consent solicitation would circumvent
the meeting/nomination process, ensure your handpicked slate runs unopposed
and disenfranchise other CommonWealth shareholders who may wish to nominate
other candidates but want to know the results of your written consent removal
campaign before investing the time and money to solicit proxies. You
previously asked the Arbitration Panel to permit the simultaneous solicitation
of written consents for the removal of existing trustees and the election of
new trustees and this request was denied, undoubtedly because it would both
violate the Declaration of Trust and disenfranchise other shareholders.
Your alternative proposal, which suggested that the existing Board may remain
in office in the event the required consents for their removal are achieved,
is also flawed. As you argued, and the Arbitration Panel agreed, the
CommonWealth Declaration of Trust provides that, in the event the removal
consent solicitation succeeds, the Board will be without further authority and
CommonWealth's officers shall call a special meeting of shareholders to elect
new trustees. The Board understands that you have offered to agree that the
Board remain in office. However, the Board does not understand how your
agreement (in contravention of the Declaration of Trust, the Panel's order and
the shareholders' mandate) would give the former Trustees authority to
continue to act as Trustees or protect the former Trustees from third party
claims. Any agreement from Related/Corvex, or even an order from the Panel, to
ignore the requirements of CommonWealth's governing documents and contractual
obligations would not be binding upon third parties (such as CommonWealth's
lenders, tenants, business partners, preferred shareholders, other common
shareholders, the Rating Agencies, the NYSE or the SEC), unless those parties
also agree to forbear their rights or somehow become parties subject to the
Arbitration Panel proceedings.
The Board intends to take all appropriate action to mitigate any resulting
harm to CommonWealth and its shareholders in the unlikely event that your
efforts to remove the entire Board, without cause, were to succeed, and RMR
intends to continue to conduct the day to day business of CommonWealth
pursuant to its contractual obligations. The Board has requested that I remind
you that it is your chosen strategy --- to remove the entire Board, without
cause, by written consent --- that creates the possibility for third party
actions and other problems which you now appear to recognize. The Board again
suggests that Related put aside its pursuit of control and you consider a more
conventional strategy to effect change in a publicly owned company by Mr.
Meister accepting the outstanding invitation to join the Board.
On behalf of the entire Board of
CommonWealth REIT
Jennifer B. Clark
Secretary
Letter Sent to CWH Board from Related/Corvex dated January 21, 2014
Corvex Management LP
712 Fifth Avenue, 23rd Floor
New York, New York 10019
Related Fund Management, LLC
60 Columbus Circle
New York, New York 10023
January 21, 2014
Ronald J. Artinian
William A. Lamkin
Ann Logan
Joseph L. Morea
Frederick N. Zeytoonjian
c/o CommonWealth REIT
Two Newton Place
255 Washington Street
Newton, MA 02458-1634
Dear Trustees:
Your revocation statement on file with the U.S. Securities and Exchange
Commission claims that if the removal action proposed by Corvex/Related
succeeds, CommonWealth may, among other things, be in violation of federal
securities laws and the listing requirements of the NYSE. Adam Portnoy has
also publicly suggested that shareholders should not support the
Corvex/Related consent solicitation because, if successful, the CommonWealth
board will be vacant for a prolonged period of time, causing damage to
shareholder interests.
Below, we propose two obvious ways to address your purported "concerns" so
that you may properly discharge your fiduciary duties via a peaceful
transition of authority in the event you are all removed from office. We are
ready to submit a joint application to the Arbitration Panel as early as
tomorrow to address your "concerns" in a constructive manner that does not
frustrate the consent solicitation process.
* You can agree not to challenge our ability to run a consent solicitation
where we simultaneously seek consents for the removal of the existing
board, and election of the new board. Both steps would then happen
simultaneously and there would not be any gap of time between removal of
the board and election of a new one. As you know, there is ample precedent
for this approach, and we believe there is nothing in your corporate
documents that prevents such simultaneous consent.
* Alternatively, we are prepared to agree that the existing trustees will
remain in office until the special meeting to elect a new board. That is,
we would agree that the certification required under Section 2.7 of
CommonWealth's declaration of trust need not be executed until the time of
the special meeting, such that at no time will CommonWealth not have a
board of trustees.
We look forward to hearing from you.
Sincerely yours,
Keith Meister
Corvex Management LP
Jeff T. Blau
Related Fund Management, LLC
cc Barry M. Portnoy
Adam D. Portnoy
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