NEW YORK CITY—Just weeks after Sam Zell becamethe new chairman of CommonWealth REIT in asequence of events that was precipitated by activist shareholdersdissatisfied with the company's governance, a major shareholder inan affiliated REIT has made public its own concerns aboutgovernance. The REIT in question is Select IncomeREIT, whose board includes the father-and-son team ofBarry and Adam Portnoy, both of whom had alsoserved on CWH's board prior to an ouster of CWH's entire board. ThePortnoys also control REIT Management &Research, which externally manages both CWH and SIR.

A June 11 letter from New Yiork City-based LakewoodCapital Management LP, over the signature of managingpartner Anthony T. Bozza, takes the netlease REIT's board to task for what Lakewood sees aslapses in governance. “During the past five weeks, we havewitnessed a sickening series of events unfold whereby the SIRtrustees have deliberately taken multiple steps to protect theirown interests at the expense of shareholders in clear breach oftheir fiduciary duties,” according to Lakewood's letter. “Webelieve SIR's shares are substantially undervalued and we urge theboard to start minding the interests of the shareholders they wereelected to represent and immediately cease any activities thatfurther entrench the board and management.”

Among those activities is what Lakewood sees as dilution ofexisting shareholders via “further equity offerings at prices belowthe fair value of the company's underlying assets.” Lakewoodcurrently controls 5.8% of SIR's stock; its interest in the companywas 6.8% prior to a recent equity offering that diluted the value.Lakewood also took the trustees to task for expanding the size ofthe REIT's board and offering to repurchase shares directly fromSIR's largest shareholder, CWH, “without making such offeravailable to all shareholders on equal terms.”