Lakewood Pushes for Change at SIR

NEWTON, MA—Select Income REIT said Wednesday it's reviewing Lakewood Capital Management's presentation calling for improvements to SIR's governance. The New York City-based investment manager, which owns 7% of the net lease REIT's stock and made its grievances public last June, has nominated former Granite REIT CEO William Lenehan as a SIR trustee.

“Like many of you, we have grown frustrated with the poor governance at SIR that we believe has led to the stock's significant discount to net asset value and dramatic underperformance over the past year,” Lakewood managing partner Anthony T. Bozza wrote in a letter to shareholders that was made public Tuesday. 

“We believe this remarkably low stock valuation and significant share price underperformance is a direct result of governance concerns resulting from the misalignment of incentives between the company and its manager, Reit Management & Research LLC, and a board of trustees that has not duly protected the interests of shareholders,” he continued. Accordingly, Bozza wrote, Lenehan's election as a trustee would provide shareholders with “a voice towards improving the company's corporate governance and share price performance.”

Lakewood's presentation Tuesday, which asserts that SIR's stock could trade at 50% above current valuation levels, reiterates themes Bozza sounded in a June 11, 2014 letter. He lambasted SIR's trustees—including the father-and-son team of Barry and Adam Portnoy, who also control RMR—for taking “multiple steps to protect their own interests at the expense of shareholders in clear breach of their fiduciary duties.”

These moves were undertaken, Bozza asserted last June, following a shareholder vote to remove the entire board of trustees at CommonWealth REIT, an affiliated real estate trust also controlled at that time by the Portnoys, and by extension removing RMR as its external manager. “When RMR lost the battle with CommonWealth shareholders, the SIR trustees abruptly lost their commitment to their fiduciary duties and their focus swiftly turned to entrenching their positions at SIR,” Bozza charged in June.

The governance changes at CWH—now known as Equity CommonWealth REIT and chaired by Sam Zell—were the outcome of a year-long campaign by two other investment managers, Corvex Management LP and Related Fund Management LLC, which owned a combined 9.6% of the REIT's stock. More recently, Corvex has taken activist stances with regard to Crown Castle International Corp. and American Realty Capital Properties, while Jonathan Litt of Land and Buildings in November said he would nominate an all-new board of trustees at apartment REIT Associated Estates Realty Corp. Headquartered in Newton, MA, SIR controls a portfolio of about 27 million square feet of properties and land across 21 states.