UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant ¨ Filed by a Party other than the Registrant x
Check the appropriate box:
| ¨ | Preliminary Proxy Statement | |
| ¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
| ¨ | Definitive Proxy Statement | |
| x | Definitive Additional Materials | |
| ¨ | Soliciting Material Pursuant to §240.14a-12 | |
COMMONWEALTH REIT
(Name of the Registrant as Specified In Its Charter)
CORVEX MANAGEMENT LP
KEITH MEISTER
RELATED FUND MANAGEMENT, LLC
RELATED REAL ESTATE RECOVERY FUND GP-A, LLC
RELATED REAL ESTATE RECOVERY FUND GP, L.P.
RELATED REAL ESTATE RECOVERY FUND, L.P.
RRERF ACQUISITION, LLC
JEFF T. BLAU
RICHARD O’TOOLE
DAVID R. JOHNSON
JAMES CORL
EDWARD GLICKMAN
PETER LINNEMAN
JIM LOZIER
KENNETH SHEA
EGI-CW HOLDINGS, L.L.C.
DAVID HELFAND
SAMUEL ZELL
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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 The
Portnoy Way: Distorting The Truth
February 24, 2014 |
 2
The Portnoys’
Record Of Twisting The Truth
A Brief Review Of Selected Flagrant Examples
•
Since
announcing
our
stake
in
CommonWealth
almost
one
year
ago,
the
Portnoys
and
their
beholden
Trustees
have
continuously
twisted
the
truth
beyond
recognition
•
Whether
addressing
shareholders
or
other
constituencies,
the
Portnoys
have
repeatedly
demonstrated
an
extraordinary
willingness
to
shamelessly
misconstrue
simple
facts
in
what
we
believe
is
an
ongoing
effort
to
mislead
investors
and
others
into
protecting
the
Portnoy
empire
•
Based
on
the
deceptions
of
the
past
several
weeks
alone
as
well
as
their
unconscionable
conduct
over
the
past
year,
we
have
no
confidence
that
the
Portnoys
have
suddenly
become
more
willing
to
act
in
the
best
interest
of
shareholders
•
In our view no amount of rhetoric or reversible governance window dressing can
redeem a 28-year track record of value destruction and governance
malfeasance •
The
following
pages
illustrate
“classic”
examples
of
the
Portnoys’
most
recent
attempts
at
twisting
the
truth
to
mislead
shareholders
and
others |
 3
The Portnoys’
Misleading Financial Analyses
The Portnoys “Cherry-Pick”
Timeframes To Skew CWH Stock Performance
Portnoys’
Distortion
(1)
•
By selecting 1/1/2011 as an end date for their performance
comparison above, the Portnoys ignore the period of 2011
through early 2013 as if they are only accountable for
performance during periods of their choosing
•
The
Portnoys’
actions
repeatedly
demonstrate
an
aversion
to
accountability
Reality
See footnotes on p. 12.
(2)
Excludes over 2 years
of recent history
~1 year after
Corvex/Related’s
initial 13-D filing
Last trading day
before
Corvex/Related’s
initial 13-D filing
52%
148%
CWH
Office REIT Peers
Average
Total
Shareholder
Return
(1/1/2000 to 2/25/2013)
174%
140%
CWH
Office REIT Peers
Average
Total Shareholder Return
(1/1/2000 to 2/14/2014)
101%
97%
CWH
Office REIT Peers
Average
Total Shareholder Return
(1/1/2000 to 1/1/2011)
The Portnoys are attempting to disclaim
selected periods of underperformance,
while taking credit for outperformance for
which they are not responsible, but in our
view there is no way to slice and dice the
data in favor of the Portnoys – their
performance has been horrible •
By selecting 2/14/2014 as an end date for their performance
comparison above, the Portnoys attempt to take credit for
almost a full year of stock performance that occurred after
Corvex and Related filed their initial 13-D |
 The
Portnoys appear to shortchange S&P 500
for ~3 years of returns,
excluding returns during
12/17/86 –
1/2/90
4
The Portnoys’
Misleading Financial Analyses
Another Astonishing Example of Portnoy Distortion
Portnoys’
Distortion
(1)
Reality
1)
CommonWealth REIT Presentation to Shareholders, p. 8, 2/18/14.
Source: Bloomberg, Factset
•
The Portnoys show a total return for the S&P 500 from December 17, 1986
(inception date of CWH) through February
22,
2013,
that
is
factually
incorrect
and
appears
to
exclude
the
period
prior
to
January
1,
1990
•
Furthermore,
the
Portnoys
select
an
end
date
of
February
22,
2013,
presumably
because
they
prefer
that
shareholders overlook the massively dilutive equity offering they announced on the
next trading day, February 25, 2013,
which
drove
CWH’s
stock
price
down
12.1%
in a single day
•
Even if February 22 were an appropriate end date, the Portnoys appear to
miscalculate CWH’s total return by an additional 103 percentage points,
for a total misstatement of over 200 percentage points Last trading day
before
Corvex/Related’s
initial 13-D filing
The Portnoys selected as an
end date the last trading day
before
the announcement of
their massively dilutive equity
offering which drove the
stock down 12%
Total Shareholder Return
(CWH's Inception on 12/17/1986 to 2/25/2013)
Total Shareholder Return
(CWH's Inception on 12/17/1986 to 2/22/2013)
877%
592%
CWH
S&P 500 Index
668%
992%
CWH
S&P 500 Index
While we question the analytical value of comparing an office REIT with the S&P 500 rather
than its office peers over the extended period in question, we believe the deceptiveness of
the Portnoys’ analysis is particularly appalling |
 In
a
letter
dated
January
21,
2014,
we
asked
the
Portnoys,
among
other
things,
if
they
would
commit to amend CommonWealth’s charter to ensure that the Board cannot opt
back into Section
3-803
of
the
Maryland
General
Corporation
Law
which
allows
them
to
unilaterally
re-
stagger the Board
The Portnoys never answered this simple question in any transparent way
But in a recent interview with REIT Wrap, Adam Portnoy was finally pressed by a
reporter to answer the question, and he answered as we expected:
The Portnoys Make Misleading Claims About Their
Governance Alterations
“During a recent telephone interview with CWH’s Adam Portnoy, we asked
whether CWH
was
willing
to
permanently
opt
out
of
MUTA
pledging
…
that
it
wouldn’t
attempt
to re-stagger its board without prior stockholder approval. Adam Portnoy
explained that CWH wasn’t taking that step because the Company
didn’t want to tie directors hands. Without that commitment, we added,
the decision to de-stagger was window dressing. Portnoy
didn’t agree with that characterization and he again pressed his point
that CWH was unwilling to tie directors hands.” REIT Wrap, February 7,
2014 The Portnoys have made misleading claims that they are making
“meaningful” governance changes including the de-staggering of
the Board at CWH 5
Under the pretense of not wanting “to tie directors hands”, the Portnoys will make sure
that any governance change they make – including declassifying the Board – is not
permanent, and can be unilaterally reversed at any time by the Portnoys’ beholden
Trustees |
 6
•
On April 4, 2013, it first came to our attention that Barry Portnoy and RMR had
hired a lobbying firm in
Annapolis,
MD
and
had
secretly
been
lobbying
selected
members
of
the
Maryland
General
Assembly to introduce a last minute change to a pending Senate bill which would
allow the CommonWealth
board
to
effectively
unilaterally
remove
the
“without
cause”
removal
provision
from
its charter
•
Barry Portnoy, with the assistance of CommonWealth’s conflicted Maryland
counsel, mischaracterized
the
amendment
to
Assemblymen
as
a
“clarification”
of
existing
law.
•
A hearing was held by the Senate Judicial Proceedings Committee on the Portnoy
amendment on April 5, 2013, one day after we first learned of RMR’s
lobbying efforts. At the hearing a number of Senators recognized the
RMR-sponsored amendment for what it was: a change in Maryland law,
not a “clarification”
•
Despite their legislative defeat, on April 12, 2013, CommonWealth opted-in to
Section
3-803
of
the
Maryland
Unsolicited
Takeovers
Act
–
the
same
statute
that
they
had
just
failed
to
“clarify”
–
and,
in
CommonWealth’s
view,
by
doing
so
eliminated
the
right
of
CommonWealth
shareholders to remove Trustees without cause
•
In
its
November
2013
ruling,
the
Arbitration
Panel
agreed
with
us:
–
“According
to
CWH’s
Declaration
of
Trust,
the
Trustees
can
be
removed
at
any
time
with
or
without
cause by two-thirds of the shareholders. The Panel concludes that CWH’s
election to opt
into
Section
3-803
of
MUTA
does
not
alter
the
CWH
shareholders’
explicit
ability
under
the
Declaration of Trust to remove Trustees without cause.”
The Portnoys’
Misleading Legislative “Clarification” |
 7
The Portnoys Lecture Us On Conflicts Of Interest
FALSE
REALITY
Peter
Linneman
had
no
conflict
of
interest
1)
Page 36 of presentation filed by CWH on 2/18/14.
In their February 18 presentation to shareholders, the Portnoys misrepresent Peter
Linneman’s actions as Chairman of Rockefeller Center Property (RCP)
during its mid-1990’s sale to an investor group that included
Goldman, Sachs & Company •
The Portnoys state “. . .Linneman had outside relationships with some of the
bidders for RCP, including
Goldman Sachs. . .”
(1)
There
were
hundreds
of
entities
that
would
have
made
at
the
time
annual
donations to Wharton of between $1,000 and $5,000
Dr. Linneman fully disclosed his role at Wharton to all RCP directors and
counsel, who deemed that this role posed no conflict
How
much
trust
should
be
placed
in
the
Portnoys’
views
on
conflicts
of
interest?
“I’m on both boards and I can say there is no conflict of
interest” –
Adam Portnoy
denying that there is a conflict of interest between RMR and CommonWealth
‘”
Whose
CommonWealth
Is
It
Anyway?”
Barron’s,
April
20,
2013
•
Dr. Linneman did not have any relationships with Goldman Sachs or other bidders at
the time of the RCP sale. CommonWealth's unsubstantiated accusation
appears to be loosely based on a 1996 press article, which speculates on an
unsupported basis that as a director of the Wharton School’s Real Estate Center
Dr.
Linneman
was
in
a
position
to
ask
for
donations
from
bidding
entities
such
as
Goldman
Sachs |
 8
The Portnoys’
Own Actions Contradict Their Claims In Real Time
Portnoys’
Distortion
•
Senior Housing Properties Trust (SNH), another Portnoy
externally-managed REIT, made the same changes to its
RMR business management agreement that CWH did
•
However, less than two weeks ago, the Portnoys directed
SNH to agree to a $1.1 billion acquisition, increasing the
size
of
SNH
by
nearly
20%,
but
only
increasing
AFFO
per
share
by
an
estimated
2-3%
(1)
,
creating
virtually
no
incremental
value
for
shareholders,
in
our
view
•
However, the increased fee streams to RMR raise SNH’s
G&A
by
an
estimated
24%
(1)
in
2014,
despite
there
being
virtually
no
incremental
cost
associated
with
asset/property
management
oversight
due
to
the
triple-net
nature
of
the
96%
leased
building
•
As a result, the Portnoys have secured a minimum of
approximately
$115
million
in
fees
over
the
life
of
the
15-
year lease on the building
Reality
•
The Portnoys claim that changes in the
terms of RMR’s management agreements
“further align the interests of management
with shareholders”
CommonWealth REIT Presentation to
Shareholders, p. 43, February 18, 2014
“We believe SNH’s planned acquisition of a $1.1 billion Boston life science
complex highlights problematic issues with regard to its external management
structure…We see SNH shares moving to a substantial discount to
underlying NAV, as the market assigns a greater discount for a corporate
structure that utilizes an external manager whose interests can conflict with
those of SNH’s shareholders. We are cutting our price target to
$19 from $22 and downgrading our rating to Sell from Neutral.”
-
UBS, “Senior Housing Properties Trust, Downgrade to Sell,”
February 11, 2014
1)
UBS,
“Senior
Housing
Properties
Trust,
Downgrade
to
Sell,”
2/11/14. |
 9
The Portnoys Omit Key Facts
Portnoys’
Distortion
•
CWH only repurchased $14.5 million of stock
from its 2009 buyback program
•
CWH has repeatedly issued equity at substantial
discounts to book value primarily for the purpose
of increasing the size of the Company and
therefore RMR’s fees, in our view
•
The RMR management contract is terminable
without penalty
upon 60 days notice
Reality
•
“CWH has repurchased stock when its share
price was low and issued stock when its
share price was higher…CWH announces
$100 million share buyback program [on
January 9, 2009]…”
CommonWealth REIT Presentation to
Shareholders, p. 22, February 18, 2014
•
“CWH did not internalize management in the
past because the Board and management
did not think it was in the best interests of
shareholders to have CWH pay an
‘internalization
fee’
to
RMR
and
also
have
higher costs at CWH as a result.”
CommonWealth REIT Presentation to
Shareholders, p. 28, February 18, 2014
By omitting key facts, the Portnoys make highly misleading claims
|
 10
The Portnoys’
Misdirected Critiques Of Our Slate of Nominees
Portnoy Complaint
Barry
Portnoy
Adam
Portnoy
Hospitality Properties Trust
Senior Housing Properties Trust
Five Star Quality Care, Inc.
RMR Real Estate Income Fund
TravelCenters of America LLC
Government Properties Income Trust
Select Income REIT
CommonWealth REIT
Barry
Portnoy
is
on
EIGHT
boards
Adam
Portnoy
is
on
SIX
boards
The Portnoys have criticized the Corvex/Related nominees, but upon closer
evaluation, their
criticisms
more
aptly
apply
to
themselves
Adam Portnoy’s track record as President of CWH
(1)
(2)
39% Decline!
* Page 10 of presentation filed by CWH on 2/18/14.
Portnoy Actions
$25.80
$15.85
$0.00
$10.00
$20.00
$30.00
1/10/2011
2/25/2013
(1)
(2)
Adam Portnoy appointed President of CWH.
Last trading day before Corvex/Related filed their initial 13D.
|
 11
Portnoy Complaint
William A. Lamkin
–
Serves on the Board of HPT and SIR,
both of which are Portnoy managed REITs and in the
aggregate paid RMR over $175 million in fees from 2008-
2012 and $587,580 in total compensation to Mr.
Lamkin.
Joseph Morea
–
While
Mr.
Morea
was
at
RBC,
RBC
received tens of millions of fees from CWH and other
RMR-managed entities. Last year, at a meeting he
attended
with
us,
Mr.
Morea,
as
the
only
so-called
“independent”
trustee at the meeting, acknowledged that
the CWH board operates without walls or delineations
between the independent and the managing trustees. We
believe him.
Reinstated as Trustee after receiving the vote of only 14%
of the outstanding shares at the 2013 annual meeting
Frederick Zeytoonjian
–
Serves
on
the
Board
of
SNH,
another Portnoy managed REIT. From 2008-2012, SNH
paid $106 million in fees to RMR and $446,980 in total
compensation to Mr.
Zeytoonjian.
Portnoys’
Beholden Trustees
The Portnoys’
Misdirected Critiques Of Our Slate of Nominees
The Portnoys’
criticisms of our nominees are better descriptors of the CWH
Trustees
* Page 10 of presentation filed by CWH on 2/18/14.
NO non-Portnoy public Board experience
NO other public Board experience
NO non-Portnoy public Board experience |
 Footnotes
12
Footnotes to page 3
Note: For comparability purposes we use the same peer set described in CWH’s
Presentation to Shareholders of 2/18/14: BDN, CLI, DRE, HIW, LRY, and PKY, but we
exclude PDM as PDM did not go public until 2/9/10. Peer Average represents a simple average.
1)
Charts re-created from CommonWealth REIT Presentation to Shareholders, p. 6, 2/18/14. 2)
2/25/13 is the last trading day before Corvex and Related filed their initial 13-D. Source: Factset
|
 13
Disclaimer
This
presentation
does
not
constitute
either
an
offer
to
sell
or
a
solicitation
of
an
offer
to
buy
any
interest
in
any
fund
associated
with
Corvex
Management LP (“Corvex”) or Related Fund Management, LLC
(“Related”). Any such offer would only be made at the time a qualified offeree
receives a confidential offering memorandum and related subscription documentation.
The information in this presentation is based on publicly available
information about CommonWealth REIT (the “Company”). This document
includes certain forward-looking statements, estimates and projections prepared
with respect to, among other things, general economic and market conditions,
changes in management, changes in the composition of the Company’s Board of Trustees, actions of the Company and its
subsidiaries
or
competitors,
and
the
ability
to
implement
business
strategies
and
plans
and
pursue
business
opportunities.
Such
forward-
looking statements, estimates, and projections reflect various assumptions
concerning anticipated results that are inherently subject to significant
uncertainties and contingencies and have been included solely for illustrative purposes, including those risks and uncertainties
detailed
in
the
continuous
disclosure
and
other
filings
of
the
Company,
copies
of
which
are
available
on
the
U.S.
Securities
and
Exchange
Commission
website
at
www.sec.gov/edgar.
No
representations,
express
or
implied,
are
made
as
to
the
accuracy
or
completeness
of
such
forward-looking statements, estimates or projections or with respect to any
other materials herein. Corvex and Related may buy, sell, cover or
otherwise
change
the
form
of
their
investment
in
the
Company
for
any
reason
at
any
time,
without
notice,
and
there
can
be
no
assurances
that
they will take any of the actions described in this document. Corvex and
Related disclaim any duty to provide any updates or changes to the analyses
contained in this document, except as may be required by law. Shareholders and others should conduct their own independent
investigation
and
analysis
of
the
Company.
Except
where
otherwise
indicated,
the
information
in
this
document
speaks
only
as
of
the
date
set
forth on the cover page. Permission to quote third party reports in this
presentation has been neither sought nor obtained. Additional Information
Regarding the Solicitation Corvex
Management
LP
and
Related
Fund
Management,
LLC
have
filed
a
definitive
solicitation
statement
with
the
Securities
and
Exchange
Commission (the “SEC”) to (1)
solicit consents to remove the entire board of trustees of CommonWealth REIT (the
“Removal Proposal”), and (2)
elect a slate of new trustees at a special meeting of shareholders that must be
promptly called in the event that the Removal Proposal is successful.
Investors and security holders are urged to read the definitive solicitation
statement and other relevant documents because
they
contain
important
information
regarding
the
solicitation.
The
definitive solicitation statement and all other relevant
documents are available, free of charge, on the SEC’s website at
www.sec.gov.
The following persons are participants in connection with the solicitation of
CommonWealth REIT shareholders: Corvex Management LP, Keith Meister, Related
Fund Management, LLC, Related Real Estate Recovery Fund GP-A, LLC, Related Real Estate Recovery Fund GP, L.P.,
Related
Real
Estate
Recovery
Fund,
L.P.,
RRERF
Acquisition,
LLC,
Jeff
T.
Blau,
Richard
O’Toole,
David
R.
Johnson,
James
Corl,
Edward
Glickman, Peter Linneman, Jim Lozier, Kenneth Shea, EGI-CW Holdings, L.L.C.,
David Helfand and Samuel Zell. Information regarding the participants
in
the
solicitation
and
a
description
of
their
direct
and
indirect
interests,
by
security
holdings
or
otherwise,
to
the
extent
applicable,
is
available in the definitive solicitation statement filed with the SEC on January
28, 2014 and Supplement No. 1 thereto filed on February 13, 2014.
|