Marcato Capital Management Expresses Concern About CommonWealth REIT Conflicted Corporate Governance, Urges Removal of All Directors
Supports Value Creation Plan for Benefit of all Shareholders Outlined by Corvex Management, LP and Related Fund Management
Marcato Capital Management LLC (“Marcato”), a San Francisco-based investment manager that holds approximately 3.7 million common shares or approximately 3.1% of the common shares outstanding of CommonWealth REIT (NYSE: CWH), today sent a letter to CommonWealth’s Independent Trustees. The text of the letter follows:
We are writing to express our strong support for the consent solicitation being conducted by Corvex Management, LP (“Corvex”) and Related Fund Management LLC (“Related”). Following our own analysis, we agree that the shares of CommonWealth trade at a substantial discount to the fair value of its underlying real estate assets. We further agree that this discount is due to a misalignment of incentives between REIT Management & Research (“RMR”) and CommonWealth's shareholders that rewards RMR for capital allocation decisions that destroy shareholder value and have resulted in a disappointing track record of underperformance. We also find the Board’s lack of independence concerning. We believe that changing the external management structure and removing the conflicted Board that enables the Company’s flawed corporate governance practices are critical to allow investors to realize the full value of their investment.
The many actions taken to further entrench the Company’s underperforming leadership in the past months have reinforced our belief that the Board and RMR are operating CommonWealth solely for the benefit of the Portnoys. In addition to a highly dilutive equity offering, the Company has taken aggressive steps to disenfranchise shareholders by brazenly attempting to amend its governing documents to prevent shareholders from having a true and fair opportunity to vote. And, in yet another attempt to benefit its self-serving agenda, the Board most recently re-appointed a director who had not received the necessary shareholder support for re-election to the Board.
Today, Institutional Shareholder Services (“ISS”), an independent proxy advisory firm, made public its report recommending that shareholders vote in favor of the consent solicitation and reinforced the view shared by CommonWealth shareholders that the corporate governance practices in place have failed:
“Votes FOR removal of all existing directors are warranted given that the dismal returns to shareholders over an extended period prior to the dissidents’ arrival, the links between underperformance on key drivers of shareholder value and the inherent conflicts of interest in the external management structure the company maintains, and the current board's use of corporate governance provisions to entrench itself, in aggregate form a compelling case that change at the board level is necessary.” (ISS Report, 13 June 2013)
We are therefore urging all shareholders who have not yet submitted their vote under the Corvex/Related consent solicitation to take advantage of this unique opportunity to reclaim their rights as owners of CommonWealth, and submit their vote in favor of removal of the current Board. We also offer our support to the Corvex/Related platform that CommonWealth internalize the management function, halt all related-party transactions, and adopt best corporate governance practices.
Kekst and Company
Jeremy Fielding/Tom Davies, 212-521-4800