CommonWealth REIT Announces Restructuring of Management Agreement with RMR and Significant Governance Enhancements
Further Aligning Interests of RMR with CWH Shareholders While
Maintaining Low Cost Structure; Increasing Independence of CWH Board;
Recommending Annual Election of All Trustees; Terminating "Poison Pill"
Arbitration Panel Dismisses Corvex/Related Claims for Damages
Against CWH Trustees
NEWTON, Mass.--(BUSINESS WIRE)--
CommonWealth REIT (NYSE:CWH) today announced the restructuring of its
management agreement with Reit Management & Research LLC (RMR) and
several significant governance enhancements.
Restructuring of Management Agreement with RMR.
CWH and RMR have agreed to restructure their business management
agreement as follows:
The base business management fees paid by CWH to RMR, which are
included in CWH's "G&A" expenses, are currently calculated at the
annual rate of approximately 0.5% of the gross historical cost of
CWH's real estate assets. Beginning in 2014, these fees will be
calculated on the basis of the lower of: (i) gross historical cost of
CWH's real estate assets or (ii) CWH's total market capitalization.
Market capitalization will include the market value of CWH's common
shares, plus the liquidation preference of preferred shares and the
principal amount of debt. The market value of CWH's common shares will
be calculated based on the average shares outstanding multiplied by
the average closing share price during the period in which the fees
are earned. Accordingly, CWH's fees paid to RMR may decline when the
market value of CWH's common shares declines.
All of the base business management fees currently paid by CWH to RMR
are paid in cash. Beginning in 2014, 10% of the base business
management fees will be paid in common shares of CWH. The amount of
CWH common shares granted as part of the base business management fee
will be calculated based on the average closing share price during the
period in which the fees are earned. Accordingly, RMR's common share
ownership of CWH is expected to increase over time.
Annual incentive fees payable by CWH to RMR included in CWH's "G&A"
expenses are currently calculated based upon increases in funds from
operations (FFO) per share and are paid in common shares of CWH which
vest immediately. Beginning in 2014, the incentive fees which may be
earned by RMR will be calculated based upon total returns realized by
CWH common shareholders (i.e., share price appreciation plus
dividends) in excess of benchmarks. The benchmarks will be set by the
Compensation Committee of CWH's Board (which is comprised solely of
Independent Trustees) and will be disclosed in CWH's annual meeting
proxy statements. Incentive fees will be paid in common shares of CWH
which will vest over a multiyear period and will be subject to a "claw
back" in the event of certain material restatements of financial
results. Accordingly, the incentive fees payable to RMR are expected
to have a direct relationship to total returns realized by CWH common
Changing Board of Trustees.
The CWH Board of Trustees intends to increase the size of the CWH Board
from its current five members and to increase the ratio of Independent
Trustees to total Trustees from the current 60% to at least 75%. The
Nominating & Governance Committee of CWH's Board (which is comprised
solely of Independent Trustees) has retained the services of the
executive search firm Korn / Ferry International to help identify
potential Independent Trustee candidates. The CWH Board also anticipates
that the Independent Trustees of the expanded Board will designate a
Lead Independent Trustee soon after the new Trustees join the Board.
Recommending Annual Election of All Trustees.
The CWH Board of Trustees has determined to recommend to shareholders
that CWH's Declaration of Trust be amended to permit the annual election
of all Trustees. CWH's Trustees currently serve staggered, three year
terms. The proposed amendment to CWH's Declaration of Trust will be
presented to CWH's shareholders at CWH's next annual shareholders'
meeting following resolution of the pending disputes with Corvex
Management LP, Related Fund Management, LLC and certain of their
affiliates ("Corvex/Related"). If this amendment is approved by CWH's
shareholders, all Trustees will thereafter be elected for one year terms.
Terminating "Poison Pill".
The CWH Board of Trustees has determined to accelerate the expiration of
CWH's shareholders' rights plan (the "poison pill"), which currently
expires on October 17, 2014, to a date soon after resolution of the
pending disputes with Corvex/Related.
Arbitration Panel Dismisses Corvex/Related Claims for Damages Against
Among the various claims asserted by Corvex/Related in the pending
arbitration proceedings were claims for money damages against CWH's
Trustees for breaches of fiduciary duty by employing RMR. After the
expert reports were exchanged which evaluated the quality and costs of
RMR's historical services to CWH, and at the request of Corvex/Related,
the Arbitration Panel ordered that these claims be dismissed with
prejudice. An evidentiary hearing before the Arbitration Panel regarding
remaining matters currently in the dispute between Corvex/Related and
CWH is scheduled to begin on October 7, 2013.
In order to implement certain changes announced today and to provide
shareholders additional time to consider these matters, and considering
the current schedule of the Corvex/Related arbitration proceedings, the
CWH Board has amended CWH's Bylaws so that the 30 day period during
which qualified shareholders may present Trustee nominations and
proposals of other business for consideration at CWH's 2014 Annual
Meeting will now commence on December 11, 2013 and will end at 5:00 p.m.
(Eastern Time) on January 10, 2014 (rather than commencing on September
28, 2013 and ending on October 28, 2013, as previously required).
CWH's Independent Trustees issued the following joint statement
regarding today's announcements:
"During the past several weeks, the Board and management of CWH have had
numerous conversations with shareholders. Historically, CWH's Board and
management have focused on providing high quality management services to
CWH at or below average costs. Nonetheless, a persistent theme of our
recent conversations with shareholders has been that CWH should further
align RMR's financial incentives with the returns realized by
shareholders and enhance its governance. The changes announced today are
intended to address these concerns, while allowing CWH shareholders to
continue receiving high quality management services at or below average
"None of the changes announced today affect the business plan that CWH
has been implementing over the last several years, which includes
focusing the Company's portfolio towards high quality office buildings
in central business district (CBD) locations and divesting non-core
suburban properties. The Board and management continue to execute this
business plan and believe it will result in enhanced value for all CWH
CommonWealth REIT is a real estate investment trust (REIT) that
primarily owns office properties located throughout the United States.
CWH is headquartered in Newton, MA.
WARNING CONCERNING FORWARD LOOKING STATEMENTS
THIS PRESS RELEASE CONTAINS STATEMENTS THAT CONSTITUTE FORWARD LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995 AND OTHER SECURITIES LAWS. ALSO, WHENEVER CWH USES
WORDS SUCH AS "BELIEVE", "EXPECT", "ANTICIPATE", "INTEND", "PLAN",
"ESTIMATE" OR SIMILAR EXPRESSIONS, CWH IS MAKING FORWARD LOOKING
STATEMENTS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON CWH'S
PRESENT INTENT, BELIEFS AND EXPECTATIONS, BUT FORWARD LOOKING STATEMENTS
ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY THESE FORWARD LOOKING
STATEMENTS AS A RESULT OF VARIOUS FACTORS. FOR EXAMPLE:
THIS PRESS RELEASE STATES THAT FUTURE INCENTIVE FEES PAYABLE TO RMR
ARE EXPECTED TO HAVE A DIRECT RELATIONSHIP TO TOTAL RETURNS REALIZED
BY CWH COMMON SHAREHOLDERS. AN IMPLICATION OF THIS STATEMENT MAY BE
THAT SHAREHOLDERS WILL RECEIVE INCREASED TOTAL RETURNS. IN FACT,
FUTURE TOTAL RETURNS REALIZED BY SHAREHOLDERS WILL BE IMPACTED BY MANY
FACTORS, INCLUDING SOME BEYOND CWH'S AND RMR'S CONTROL. FOR EXAMPLE,
THE TOTAL RETURNS REALIZED BY SHAREHOLDERS ARE DEPENDENT UPON THE
CHANGES IN THE TRADING PRICE OF CWH SHARES WHICH MAY REFLECT CHANGES
IN INTEREST RATES, THE EXPECTATION OF FUTURE INTEREST RATE CHANGES OR
OTHER GENERAL MARKET CONDITIONS. ACCORDINGLY, THERE CAN BE NO
ASSURANCE THAT THE CHANGES IN THE METHOD OF CALCULATING THE INCENTIVE
FEES PAID BY CWH TO RMR WILL INCREASE THE TOTAL RETURNS REALIZED BY
CWH COMMON SHAREHOLDERS.
THIS PRESS RELEASE IMPLIES THAT CWH'S HISTORICAL AND FUTURE G&A COSTS
HAVE BEEN, AND WILL BE, AT OR BELOW THE AVERAGE OF SUCH COSTS AMONG
ITS PEER GROUP. CALCULATING THE RELATIVE COSTS OF G&A SERVICES CAN BE
DONE IN MANY DIFFERENT WAYS; FOR EXAMPLE, IN ACTUAL DOLLAR AMOUNTS, AS
A PERCENTAGE OF ASSETS VALUED AT COST OR BOOK VALUES, AS A PERCENTAGE
OF BOOK OR MARKET EQUITY VALUES, AS A PERCENTAGE OF REVENUES, OR
OTHERWISE. CWH BELIEVES THAT ITS STATEMENTS ARE BASED UPON CUSTOMARY
CALCULATIONS USED IN THE REIT INDUSTRY TO COMPARE G&A COSTS BASED ON
FINANCIAL STATEMENT METRICS. HOWEVER, DEPENDING UPON HOW RELATIVE G&A
COSTS ARE CALCULATED, IT MAY BE POSSIBLE TO ARGUE THAT CWH'S
HISTORICAL AND FUTURE G&A COSTS ARE NOT, AND WILL NOT BE, AT OR BELOW
THIS PRESS RELEASE STATES THAT THE CWH BOARD OF TRUSTEES PLANS TO
INCREASE THE SIZE OF THE BOARD AND TO INCREASE THE RATIO OF
INDEPENDENT TRUSTEES TO TOTAL TRUSTEES FROM THE CURRENT 60% TO AT
LEAST 75%. BECAUSE OF THE UNCERTAINTIES CREATED BY THE EFFORTS OF
CORVEX/RELATED TO REMOVE THE ENTIRE CWH BOARD AND THE ASSOCIATED
LITIGATION AND ARBITRATION IN WHICH THE CWH TRUSTEES ARE NOW ENGAGED,
CHANGES IN THE CURRENT BOARD MAY NOT BE POSSIBLE OR PRACTICAL UNTIL
RESOLUTION OF THE PENDING DISPUTES WITH CORVEX/RELATED. AS A RESULT,
IT MAY TAKE A PROLONGED PERIOD OF TIME TO IMPLEMENT SOME OR ALL OF
THESE CHANGES TO THE CWH BOARD.
THIS PRESS RELEASE STATES THAT, AFTER THE RESOLUTION OF THE PENDING
DISPUTES WITH CORVEX/RELATED, CWH'S BOARD HAS DETERMINED TO RECOMMEND
TO SHAREHOLDERS THAT CWH'S DECLARATION OF TRUST BE AMENDED TO PROVIDE
THAT ALL TRUSTEES BE ELECTED TO SERVE FOR ONE YEAR TERMS. THIS
AMENDMENT MAY NOT BE APPROVED BY CWH'S SHAREHOLDERS. ALSO, ALTHOUGH
CWH'S BOARD HAS NO CURRENT INTENTION TO DO SO, CWH'S BOARD MAY
DETERMINE IN THE FUTURE NOT TO PROCEED WITH A PROPOSAL TO SHAREHOLDERS
TO PROVIDE THAT ALL TRUSTEES BE ELECTED TO SERVE FOR ONE YEAR TERMS.
THIS PRESS RELEASE STATES THAT CWH'S BOARD INTENDS TO ACCELERATE THE
EXPIRATION OF CWH'S SHAREHOLDERS' RIGHTS PLAN (THE "POISON PILL")
AFTER THE RESOLUTION OF THE PENDING DISPUTES WITH CORVEX/RELATED.
UNDER APPLICABLE LAW, THE CWH BOARD HAS THE POWER TO CREATE, AMEND,
EXTEND OR TERMINATE A SHAREHOLDERS' RIGHTS PLAN. ALTHOUGH CWH'S BOARD
HAS NO CURRENT INTENTION TO DO SO, CWH'S BOARD MAY DETERMINE IN THE
FUTURE NOT TO ACCELERATE THE EXPIRATION OF THE PLAN OR TO ADOPT A NEW
SHAREHOLDERS' RIGHTS PLAN AFTER THE CURRENT PLAN EXPIRES.
THIS PRESS RELEASE STATES THAT AFTER THE EXPERT REPORTS WERE EXCHANGED
WHICH EVALUATED THE QUALITY AND COSTS OF THE RMR SERVICES TO CWH, AND
AT THE REQUEST OF CORVEX/RELATED, THE ARBITRATION PANEL HEARING THE
DISPUTES BETWEEN CORVEX/RELATED AND CWH'S TRUSTEES ORDERED CLAIMS BY
CORVEX/RELATED FOR MONEY DAMAGES FOR BREACHES OF FIDUCIARY DUTY
AGAINST CWH'S TRUSTEES BE DISMISSED WITH PREJUDICE. AN IMPLICATION OF
THESE STATEMENTS MAY BE THAT OTHER CLAIMS IN THE PENDING ARBITRATION
WILL BE DECIDED IN FAVOR OF CWH AND THE CWH TRUSTEES. DISCOVERY AND
OTHER ACTIVITIES DURING LITIGATION AND ARBITRATION PROCEEDINGS
SOMETIMES PRODUCE UNEXPECTED RESULTS. CWH CANNOT PROVIDE ANY
ASSURANCES REGARDING THE OUTCOME OF THE PENDING ARBITRATION
PROCEEDINGS. ALSO, OTHER SHAREHOLDERS HAVE BROUGHT LITIGATION AGAINST
THE CWH TRUSTEES, WHICH LITIGATION REMAINS PENDING IN SEVERAL COURTS
AND IN ARBITRATION PROCEEDINGS; CWH CAN PROVIDE NO ASSURANCES
REGARDING THE OUTCOME OF THESE OTHER SIMILAR LITIGATIONS AND
THIS PRESS RELEASE STATES THAT THE CWH BOARD AND MANAGEMENT ARE
CONTINUING TO IMPLEMENT THE BUSINESS PLAN OF FOCUSING THE COMPANY'S
PORTFOLIO TOWARD HIGH QUALITY OFFICE BUILDINGS IN CENTRAL BUSINESS
DISTRICT LOCATIONS AND DIVESTING NON-CORE SUBURBAN PROPERTIES, AND
THAT THE CWH BOARD AND MANAGEMENT BELIEVE THIS BUSINESS PLAN WILL
RESULT IN ENHANCED VALUE FOR ALL CWH SHAREHOLDERS. THE SUCCESS OF
CWH'S BUSINESS PLAN DEPENDS UPON MANY FACTORS, INCLUDING SOME FACTORS
BEYOND CWH'S CONTROL. CWH'S ABILITY TO ACQUIRE PROPERTIES IN CENTRAL
BUSINESS DISTRICT LOCATIONS DEPENDS UPON CWH'S ABILITY TO LOCATE SUCH
PROPERTIES WHICH MAY BE AVAILABLE FOR SALE, TO NEGOTIATE ACCEPTABLE
PURCHASE PRICES AND FINANCING TERMS; CWH'S ABILITY TO DIVEST NON-CORE
SUBURBAN PROPERTIES DEPENDS UPON CWH'S ABILITY TO IDENTIFY BUYERS FOR
SUCH PROPERTIES ON ACCEPTABLE TERMS; AND THE BUYING AND SELLING OF
PROPERTIES NECESSARY TO IMPLEMENT CWH'S BUSINESS PLAN DEPENDS UPON
ACTIONS BY THIRD PARTY SELLERS AND BUYERS WHO ARE BEYOND CWH'S
CONTROL. ALSO, THE VALUE REALIZED BY CWH SHAREHOLDERS WILL DEPEND UPON
OTHER FACTORS IN ADDITION TO THE SUCCESSFUL IMPLEMENTATION OF CWH'S
BUSINESS PLAN, INCLUDING MARKET CONDITIONS AFFECTING ALL REITS, SUCH
AS MARKET EXPECTATIONS FOR INTEREST RATE CHANGES. ACCORDINGLY, CWH CAN
PROVIDE NO ASSURANCE THAT IT WILL BE ABLE TO SUCCESSFULLY IMPLEMENT
ITS BUSINESS PLAN OR THAT DOING SO WILL ENHANCE SHAREHOLDER VALUE.
FOR THESE REASONS, AMONG OTHERS, INVESTORS ARE CAUTIONED NOT TO PLACE
UNDUE RELIANCE UPON ANY FORWARD LOOKING STATEMENTS IN THIS PRESS RELEASE.
EXCEPT AS REQUIRED BY LAW, CWH DOES NOT INTEND TO UNDERTAKE ANY
OBLIGATION TO UPDATE ANY FORWARD LOOKING STATEMENT IN THIS PRESS RELEASE
AS A RESULT OF FUTURE EVENTS, NEW INFORMATION WHICH MAY COME TO CWH'S
ATTENTION OR OTHERWISE.
A Maryland Real Estate Trust with transferable shares of beneficial
interest listed on the New York Stock Exchange. No shareholder, Trustee
or officer is personally liable for any act or obligation of the Trust.