Seeking Alpha

Zell comments on CommonWealth REIT battle

  • "CommonWealth REIT (CWH) is "flat as a dead man's EKG," says Sam Zell, commenting on the performance of the company's common stock over the past fifteen years vs. the REITs he has run.
  • "I believe that you have roughly a $7B collection of assets that have been misaligned or misstrategically run, because, effectively, the incentive to the manager was keep buying assets because you get paid on number of assets under your control, not the performance."
  • "[Corvex/Related] came to me and said our interests are economic; we want to build out of this a great new company; are you interested?"
  • Shares +1.5% in early action
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Comments (1)
  • dclaudew
    , contributor
    Comments (75) | Send Message
     
    The issues are so complex:
    * The CWH company had debt issues in 2013 that CWH effectively resolved by issuing new stock. This increased the outstanding stock by approximately 50%, but resolved any potential downgrading of the the company's debt. Unfortunately, dilution continues, as RMR is paid in stock. A tie for CWH and Related.
    * The CWH board is overboarded. Adam and his father are on multiple boards. A tie for CWH and Related.
    * The CWH board claims its strategy is to divest in the suburbs and acquire commercial business districts. Mr. Zell may want to keep the suburban properties, while adding capital improvements to them. A tie for CWH and Related.
    * The CWH board says Mr. Zell wants to sell off the best properties. CWH spins off its best properties into new ticker symbols, such as SIR. A tie for CWH and Related.
    * The CWH board says the Zell board would not be independent. The CWH board is completely controlled by CWH's employees (Mr. A and Mr. B Portnoy). The Portnoy's set their salaries, their "incentives," and their RMR management fee. Strong win for Related.
    * The Zell group issues a "Value Creation" graph that shows the CWH price chart. The flat-line slope comes as no surprise to stockholders. Strong win for Related.
    *The Zell group has members who have destroyed the companies they have raided. This does not include Mr. Zell himself. The Portnoy's have destroyed the stockholder returns at CWH for decades. Tie for CWH and Related.

     

    I'm still voting Gold for 4,500 shares. If the Portnoy's, who do an excellent job as managers of their own RMR firm, would quit the board so that there are no conflicts of interest or self dealing, I would gladly change my vote to White. I believe the current board is finally bringing value to the stock. I believe RMR is a capable management company to manage the CWH properties and even to advise the CWH board. I do not believe the stock will continue to do well with self-dealing employees positioned in control of stock dilution, "incentives," and management fees. Win for Gold.
    3 Mar, 11:36 AM Reply Like
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