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Anyone else looking at CWH?


It is an externally managed REIT undergoing a proxy fight with Corvex (Icahn protege Keith Meister) and Related (big real estate company)


It's not overly complicated. At 1X book value, 10X last quarter's annualized normalized funds from operations (adding back litigation expense) and a substantial discount to Corvex/Related's estimate of NAV ($40 before a majorly diluted offering executed by the parasitic Portnoys, now about $32), I think the shares at 22.80 are quite compelling.


There is no tenant that makes up more than 2%, lease roll over is fine, the activists are very likely to win (management is truly awful!) and get enough shareholders to remove the entire board and there is a lot of S,G,+A/ fee bloat that can be easily cut to increase FFO. The balance sheet is in fine shape. While the equity offering earlier this year destroyed a ton of value and has to be a case study in shareholder unfriendly behavior, it was used to pay down high cost debt and delevered the company, as did a recent offering of shares in an affiliate.


It isn't amazing real estate or anything but with the index at 16X FFO and a this at 12.7X on current operations and 10X when backing out non-ongoing expenses, there is a big gap to narrow here.


The assets are

Core + interest in SIR + non-core (recently put up for sale and written down substantially). The interest in SIR and non-core are more or less unencumbered and can be converted to cash to be redeployed elsewhere (share repo, acquisitions etc.). Obviously you want that to happen under the guidance of someone other than the Portnoys given their track record.


Last quarter, CWH did 0.45/share in funds from operations and 0.57 when adding back litigation expense. If we assume 2.28 normalized FFO per share and the activists can win and move toward an 80% FFO payout ratio and a 6% yield, you get to $30/share in a 12-24 months which is 33% plus dividends. Corvex/Related have offered to buy the company at $24.50, but a removal of the board changes in management and operations is preferable.


The exact path will not be that simple, because the Portnoys are still in control of the company and may still pull some rabbits out of their hat or destroy value further, but it looks like a 75 cent dollar with a clear catalyst on the horizon.


Corvex/Related Site



SEC filings w/ all the proxies



Original pre-dilutive offering presentation:



WSJ summary of where we are today:






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a bit surprised by the analyst's cap rates and valuations which suggests lower upside than my simplistic analyses, the activists own appraisals, etc.


But note the valuation sensitivity to cap rate 9.3% is 17.00/share while 7.8% is 25.00. A difference of 1.5% is the difference between down 25% and up 9%. As you go to lower cap rates and divvy yields the sensitivity in valuation only increases, which is how you can get to higher upside.


Also those quoting higher upside are assuming that a public portfolio of 200+ buildings will trade at a slight premium to private market value (by trading on divvy yield to equity rather than NAV), which  in my opinion is reasonable, under current market conditions, which can change, of course.


Still at the current price, it looks like you are buying a levered portfolio of mediocre real estate at an 8+% cap rate where the liabilities costs much less than 8% so the yield on the equity is higher and much higher than on the REIT index (which is dominated by bigger, higher quality companies)


I debate with myself as to whether this is more of a relative value trade than being absolutely cheap, but I think that the chance of activists winning is very high and i'm comfy with the downside, but I can see the argument that the cap rate on the whole enterprise value would not be high enough (the company is not cheap enough).


Anyone else interested?


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I prefer ARCP because it trades at nearly the same FFO with guidance for next year it is at an P/FFO of around 11. But the management is much better and is paid only with stocks and they are still buying more, so they seem to be very bullish. With 40% upside to a P/FFO multiple of 15 and a dividend yield of 7-8% this looks like a >15% CAGR in the next 4-5 years.


So why take the stock with problems when you can get it without the troubles? (The only positive thing is the P/NAV but that shouldn`t really matter as long as the business is running normal.)

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Thanks for the feedback! I've looked at ARCP but could never quite fully understand all the moving parts with the recent mergers and capital markets transactions.


I won't argue with you on management. CWH's management took 30% of the market cap in fees over 5 years!!! CWH's assets are simpler to understand in my opinion and ARCP is more of a "issue equity at a high price, buy assets at a lower price private/public multiple arb play" right? Am i wrong to characterize it that way?


I'm more comfortable with paying the same multiple and at a discount to NAV for what I think is an easier to analyze company, but ARCP definitely looks interesting. I don't mind the management problems because I think they will get kicked out, but there is a risk that they won't. 


Different strokes, different folks. Without a sudden violent rise in long term rates or a drastic selloff in REITs, I think we'll both make good money.

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I've looked at ARCP but could never quite fully understand all the moving parts with the recent mergers and capital markets transactions.


This is exactly why the ARCP opportunity exists! It's very confusing and there is a decent amount of debt outstanding. But....


Management is very high quality (and buying a lot of shares themselves) and they are maniacally focused on high quality tenants in buildings that can be easily converted to another business (i.e. they avoid buildings such as Circuit City and Best Buy b/c they are difficult to repurpose).

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I've looked at ARCP but could never quite fully understand all the moving parts with the recent mergers and capital markets transactions.


This is exactly why the ARCP opportunity exists! It's very confusing and there is a decent amount of debt outstanding. But....


Management is very high quality (and buying a lot of shares themselves) and they are maniacally focused on high quality tenants in buildings that can be easily converted to another business (i.e. they avoid buildings such as Circuit City and Best Buy b/c they are difficult to repurpose).


I don't disagree with you. I just couldn't figure it all out the first time around. Will have another look.

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I looked at it a little pupil.  Management are scumbags for sure.  My recollection is i liked it at the price before the pop on the activists and was supposed to go back and look at it if it sold off down to that level after the hot money lost interest, but of course my ADD took over.  I am apt to let perfect be the enemy of good though.  hah!

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  • 3 weeks later...

Commonwealth's management has taken significant changes and invited the activist (Keith Meister) to the board in a desperate attempt to save themselves. Overall, too little, too late and i hope they get thrown out completely, but there is some progress being made here.








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Seems like an interesting idea. May buy leaps after the take over.

Amazing how much value an entrenched management can destroy. This was a still prior to the equity offering.


If I were the team looking to take over, I would rinse and repeat this at the other reits managed by RMR.

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  • 4 weeks later...

I'm not sure about the record date or how it works exactly. I know that I have received the materials and will mail them in ASAP, as have a few friends. I have not opened mine yet but I am told that you cannot vote online and that you have to mail it in by taking it to a UPS drop off point. I hope this doesn't hinder people from voting. We need 70% to get rid of the board entirely and non-votes are effectively votes to keep the Portnoys in power.



Edit: One thing that does worry me a little bit is if the Portnoys can use the RMR empire to have REITs they control buy shares of CWH to try to swing the balance in their favor. I'm not sure how/if that would be disclosed, but I just fear these guys are going to do everything in their power to keep the fee gravy train rolling.

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Well if you already received the proxy then the record date was set earlier. So anyone buying shares now will not have a vote. The seller will, as they were the owner on the record date.


I don't believe other rmr reits hold material amounts of CWH, Corvex would have surely pointed that out, and I haven't seen it anywhere.


The thing I like about activism, is that even if it's "unsuccessful" it usually scares management enough to make some positive changes. The fee agreement is already more fair than in the past. Still not fair, but an improvement.





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"CommonWealth yesterday set Feb. 18 as the record date for shareholders entitled to vote to remove the board."


I was wrong, you can still by the shares and vote. And I think Sam Zell being on board is a very positive sign. He is a veteran of real estate turnarounds.



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Stock up about 20% since posting. While I think everything will work out, the risk/reward is incrementally worse as people have started to price in a win for the activist and preemptively close the valuation gap.


I've mailed in my gold card and impatiently await the Defenestration of Portnoy.


Recent developments

-aforementioned setting of record date

-Sam Zell will be chairman should activists win

-this wonderful bit of activist advertising




Now we sit and wait and hope this thing trades to the activists' estimate of NAV upon a win. I've hedged the disaster scenario that the portnoy's win as it is somewhat cheap to do so with the stock up a fair bit.


Edit: Sidenote, the Portnoy's are running out of time to do something with SIR. If the activists are successful in gaining control of CWH, they'll effectively control SIR as well and can once again create value by kicking out the parasites. It may be interesting (assuming it doesn't rally too much) to buy SIR if/when CWH board is thrown out as Myth alluded to earlier in the thread.

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  • 2 weeks later...

Notes from the past week or so




Not much new in the below WSJ article but it does have a quote from

Delaware (big LO insititutional money manager owns 8%) saying he's

siding with Corvex/Related and it says that Vanguard (largest

shareholder) sided with the Corvex Related last time and Blackrock

abstained  The Delaware news is good news!


The passive index guys have the capacity to screw up the campaign. Also a recent

VIC pitch on the preferred theorized that Vanguard was more

pro-portnoy since the portnoys waived their poison pill to allow

Vanguard to buy more.


So the way i see it, we have 35% (1/2 of the 70% we need) in the bag

(definites +actives), 19% passives whose vote is critical (get those

and you're almost 80% there), and then i think we'll easily get the

vast majority of smaller shareholders since we got 70% last time and

they are highly unlikely to be convinced the changes are sufficient.

Also I haven't ever seen a single positive thing written about the

Portnoys in media or on message boards/seeking alpha. Longtime retail

shareholders hate these guys and I think they will take the effort to

mail in their cards.



Definitely on our side (17.5%)

Corvex/related                9.5%

Delaware/Macquarie        8.1%


Hedge Funds/Active MF's incredibly likely to be on our side (17% ish)

Perry                            5.0%

Owl Creek                      3.7%

AQR                              2.9%

Marcato                        2.4%

Highfields                      2.4%


The passives that need to put us over the hump

Vanguard 12.3%

Blackrock 6.7%



Quotes from WSJ:


"Clearly these changes were reactionary to the pressure they were

under," said Ian Ferry, a portfolio manager at Delaware Investments, a

mutual-fund manager that owns 8.13% of CommonWealth's stock and is

siding with the dissidents.


The outcome of the vote hinges largely on a few shareholders. The

Vanguard Group Inc., owns more than 12% of CommonWealth's stock, while

affiliates of BlackRock Inc., own about 7%. Vanguard sided with the

dissidents in last year's vote; BlackRock abstained. Both firms

declined to comment.



Also Earnings yesterday:


arnings out today, conference call later....only thing that is important is that the Portnoys diluted shareholders and destroyed value in 2013. FFO / share down significantly.


Normalized FFO available for CommonWealth REIT common shareholders for the year ended December 31, 2013 was $300.6 million, or $2.67 per share basic and diluted, compared to Normalized FFO available for CommonWealth REIT common shareholders for the year ended December 31, 2012 of $283.8 million, or $3.39 per share basic and diluted.


Sam Zell CNBC interview this morning

first of all, this particular situation, the commonwealth situation, is a situation where a structural impediment results in shareholders having almost no voice. by virtue of an externally managed structure of which there are very few equity reits. all of the rest of them are self-managed and avoid conflicts that exist when an outside manager manages assets he doesn't own. and as far as our backing is concerned, this started badly a year ago. they felt strongly that this was both an undervalued situation and a situation where shareholders were being deprived of their right to vote and be represented. they came to me and said our interests are economic. we want to build out of this a great new company. are you interested? i said, if you are successful, we would be prepared to take over the company and set up management operation very similar to what we did with the lp. so looking back at the last ten years or whatever, sam, you sold -- you didn't know why you were selling. it just seemed like a good time because of what people were offering you. we've had you on since then and things have come back down to where they are attractive again in your view. where are we right now with an improving economy? you're interested in this deal. is there inhe is there inherent value in real estate everywhere? the stuff that you sold, is it back to where it was when you sold it at this point? no. i don't think that the office market is even close to where it was in '07. in this particular situation, i believe that you have roughly a $7 billion 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 on the performance. all you have to do is look at the chart of eqr, eop and, over the last 15 years, they're in a serious uptrend. commonwealth is dead as a dead

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  • 3 weeks later...



Holders of Over 81% of the Outstanding Shares of CommonWealth REIT Approve Removal of Entire Board of Trustees


Now the hard part: installing new management and restructuring the assets and company to maximize value. It's not a slam dunk from here, but so far so good.

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  • 2 weeks later...

How hilarious is this?


0.02% of shares voted against removal of  Portnoys. I bet those 25 odd thousand are the two Portnoys themselves.






                            Consent to Remove    Against Removal        Abstain

    Ronald J. Artinian            96,519,999          2,616,865          183,567

    William A. Lamkin            99,073,207            63,657            183,567

        Ann Logan                96,517,303          2,619,561          183,567

      Joseph L. Morea            96,534,228          2,602,636          183,567

      Adam D. Portnoy            99,111,573            25,291            183,567

    Barry M. Portnoy            99,111,802            25,187            183,442

Frederick N. Zeytoonjian        99,076,194            60,670            183,567

Any other person or persons

elected or appointed to the

    Board prior to the

  effective time of the

        proposal                99,121,487            15,502            183,442


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  • 3 months later...

CWH just monetized their stake in SIR (a shame for shareholders of SIR) but it gives CWH 20% of market cap in cash. REIT with NAV in low to mid 30's with 20% of market cap in cash chaired by Sam Zell and run by a new blue chip managment team. Not a 50 cent dollar, but not a terrible place to be in my opinion.




CommonWealth sells Select Income stake to Government Properties


    Now under new management, CommonWealth REIT (CWH) sells its 22M shares of Select Income REIT (SIR) to Government Properties Income Trust (GOV) and Reit Management & Research (the Portnoys' management company) for $705M.    GOV made the bulk of the purchase with 21.5M shares and RMR purchased the other 500K. Both GOV and SIR continue to be managed by RMR.

    Source: Press Release

    CWH +6.1%, SIR -1.6% AH

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  • 5 months later...

Back below the $24.50 at which Meister offered to take it out.  BTW it has performed a lot better than ARCP.  haha.  I listened to last quarter, they are still digging into the assets but I like the cut of their jib and the comments about looking to be sellers in this market.  I see some grave dancing down the line.

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yep, sitting here right at GAAP common equity with $1B (1/3 of market cap) of accumulated depreciation, very little asset level and corporate leverage, a big cash pile with which they are retiring any higher cost debt, some additional asset sales likely (Australia) etc; there are lots of things to like.


Overall it's a good way to buy some buildings. The REIT index is up 23% this year and is  made up of fully optimized pure play things with reasonably levered balance sheets that trade at nosebleed valuations.


The hodge podge of randomness known as Equity Commonwealth is up a meager 4%, has an inefficient, spring-loaded and ready to buy if/when shit hits the fan balance sheet, has no strategic focus, a new management team, and all kinds of other things that make it a fish out of water. It's a better place to be.

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  • 2 months later...

I wonder if we should start a new thread or if you can rename this one to EQC, pupil? 


Anyhow, I just listened to the CC.  It was pretty interesting.  Sam Zell was on there and was very engaged (I don't remember him being on the prior calls).  They are targeting 2-3 billion in asset dispositions.  Sounds like they're going to try and really build the war chest for future grave dancing.  They're going to keep letting for CBRE handle the property management for the time being.



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  • 3 months later...





sold big portfolio of smaller assets in smaller markets, gross book of $794MM, net book of $660MM, sales price of $793MM


So they got 1X gross book for their portfolio of properties in smaller markets. EQQ has net common equity of about $3B and $1B of cumulative depreciation, so gross common equity of $4B, so if you get closer to 1X gross book (where they are selling their lower quality properties you get 20% upside from here on the re-rate + value growth sam zell optionality from there


Also good that the portfolio gets better and easier to understand with these sales. They've cut their building count in half and only reduced square footage  and rent by 20% and 16%.


I'd characterize the portfolio sales as roughly in line with expectations, good, but not great, stock isn't as interesting as it was when it was 15% ago but I'd say you still have well managed low risk optionality here, particularly given the plan to continue to reduce debt and sell more assets.


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  • 2 weeks later...



Good Transcript. I like the word "mergable"


People have worked very hard and it's really a unique opportunity for all of us to be a part of something that has a chance to take a pool of assets to reallocate them, create cash with them and then our hope is to find an opportunity to drive long-term value in an opportunistic way going forward with a remake of the entire portfolio to the extent an opportunity presents itself and it's not clear that it will and I think we've been clear with people that if there is no opportunity to deploy capital in a way that we think creates long-term value, we'll continue to sell assets and potentially merge out what is a much smaller more desirable pool of assets so we have been selling assets that are less desirable. We have a very attractive portfolio of assets principally Philly, Chicago, Austin, Denver and Seattle, Bellevue, and really what we do will be dictated by the opportunity.



here are kind of two portfolios within this portfolio, right, there's a core portfolio of 30 or 50 assets that look and smell and taste like the assets that our peers own. We don't think that the REIT community will have a hard time valuing that, right, when we cut away all of the stuff that doesn't belong, then that will be something that's the mergeable portfolio that David described earlier what's hard is everything else, right? And everything else is what's in this $2 to $3 billion of dispositions that we've talked about. It gets a whole heck of a lot less hard when we turn it into cash. Then there's no debate, we know what that's worth and we know what this left-over portfolio is worth.




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