The activist doesn’t fall far from the tree.
A hedge fund run by a former lieutenant of Carl Icahn, the billionaire investor famous for clashing with management, has teamed up with a major real estate developer to push for change at CommonWealth REIT.
On Tuesday, Keith Meister, the protege of Mr. Icahn, and Jeff Blau, the chief executive of the developer Related Companies, disclosed a 9.8 percent ownership stake in CommonWealth. The investors published a letter that they sent to CommonWealth management, along with a 50-page slide presentation that agitates for change at the Newtown, Massachusetts-based property owner.
Citing poor leadership, a board lacking independence, and historical underperformance, Mr. Meister and Mr. Blau said that if management is unwilling to engage in discussions about how to improve the company, they will take further action. The investors specifically took aim at a stock offering that CommonWealth announced yesterday, ordering them to withdraw it because it s damaging to existing shareholders and a prime example of a bad management decision.
“If the board fails to adequately respond, Corvex and Related are prepared to seek the removal of the board so that it may be replaced with five truly independent trustees,†the investors said.
The investors’ activist stance comes as a slew of high-profile hedge fund managers have gone public with complaints about public company management. In the energy sector, the hedge fund Elliott Management
has pushed for a shake-up at Hess Corporation and the investor TPG-Axon is seeking to oust the top executives and board at SandRidge Energy. David Einhorn, of Greenlight Capital, has attacked Apple for
its management decisions, and William Ackman has publicly declared the nutrition company Herbalife a fraud.
As the longtime righthand man of Mr. Icahn â€" a pioneer of activist investing â€" Mr. Meister fits squarely within this crew of agitators. Since starting Corvex two yeas ago, Mr. Meiste! r has disclosed five different activist stakes, including CommonWealth. Mr. Meister took a seat on the board of the food company Ralcorp and
secured a seat on the board. He agitated for the sale of the company, and last month, ConAgra acquired it for $5 billion. Late last year, the security business ADT appointed Mr. Meister to its board after he took a large position in the company.
Mr. Meister worked at Icahn Enterprises for seven years before December 2010, when he began Corvex. At Icahn, he served on several public company boards, including Motorola Mobility and Federal-Mogul Corporation. Today, Corvex manages about $3 bilion.
Related, a prominent property owner perhaps best known for its development of the 26-acre Hudson Yards site in New York, is not normally in the business of taking activist positions in public companies.
Yet several months ago, Mr. Blau, Related’s new C.E.O., saw CommonWealth as a very undervalued and badly managed business and partnered with Mr. Meister toaccumulate a large position in the company. Related is making the investment out of its fund business that manages money for outside investors.
Commonwealth REIT, which has a market value of about $1.3 billion, owns a portfolio of mostly office properties in the United States and Australia. The company’s shares are trading a roughly 60 percent discount to the assessed value of its real estate holdings.
Investors in the company, including Mr. Meister and Related, blame a corporate structure that allows its president, Adam Portnoy, and another director, Barry Portnoy, to get paid lucrative fees for managing the company’s real estate. That, they say, creates an incentive to issue stock and acquire more real estate assets, which increases the company’s property base along with the management fees.
The investors said that, according to public filings, over the last five years CommonWealth has paid out over $336 million in management fees to a company controlled by the Portnoys, a n! umber rep! resenting more than 20 percent of the company’s market value.
Wall Street analysts appear to agree. In a conference call last year, an analyst at Stifel Nicholas blasted the company in a comment directed at Mr. Portnoy.
“Don’t take this personally and take it constructively please,†said
the Stifel analyst, “But when I talk to investors about CommonWealth,
the investment strategy, the balance sheet, the operations, there’s
just zero investor confidence out there. The term that most people use
is ‘uninvestable.’â€
