CWH Urges 'No Action' on Board Ouster

NEWTON, MA-CommonWealth REIT on Friday urned shareholders to take “no action” following a report by Institutional Shareholder Services recommending that the locally based office REIT's entire board be voted out. The proxy advisory firm's report had been endorsed by Related Fund Management and Corvex Management, which own 9.9% of CWH's stock between them and which have sought the board's ouster since a takeover offer was rejected earlier this spring.

"The company strongly believes that it is not appropriate for ISS to issue any report or recommendation at this time, as no valid record date has been set and the Corvex/Related activities do not constitute a valid consent solicitation,” CWH's board said in a statement Friday. “The validity of the Corvex/Related consent solicitation depends upon a court or an arbitration panel making a number of findings, including that certain of CommonWealth's bylaws are invalid and that its Board members may be removed without cause. The company is also disappointed that ISS issued this report before it is appropriate to do so because it will likely cause confusion among CommonWealth shareholders."

In a joint statement, Keith Meister of Corvex and Jeff T. Blau of Related call ISS' report “a monumental recommendation from a leading proxy advisory firm in that it recognizes the need for immediate, wholesale change to CommonWealth's board. We are pleased that ISS strongly supports our effort to stop the value destruction at Commonwealth and free the Company from its abysmal corporate governance practices and continued mismanagement by the Portnoys,” referring to father and son Barry and Adam Portnoy, who are CWH's founder and president, respectively.

Meister and Blau call their consent solicitation “a referendum on CommonWealth's board and management, and a successful remove vote will create a clear path for shareholders to nominate truly independent and accountable trustees who are committed to the future success of CommonWealth for the long-term benefit of all shareholders. Make no mistake, our only agenda is to effect change and remove CommonWealth's trustees, and we appreciate the strong and broad support of those who have already voted in favor of change at CommonWealth.”

The ISS report notes that votes to remove all exisitng CWH 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." Further, the report states that between 2007 and 2012, a period in which CWH's management team increased assets by 198% of the period-ending market cap, thus driving “a significant increase in fees payable to management,” the REIT's share price fell by 68%.