Select Income REIT (NYSE:SIR), Government Properties Income Trust (NYSE:GOV), Senior Housing Properties Trust (NYSE:SNH), Hospitality Properties Trust (NYSE:HPT) — these are all top-yield REITs that have consistently topped the rankings in their respective sub-sectors (Diversified, Industrial/Office, Healthcare, Lodging/Hospitality). If all of them have been managed externally by the same investment manager Reit Management & Research (RMR), per Monday’s announcement, they now own, in aggregate, 48.4 percent of RMR. Though each belongs to a different sector, the four REITs have been more integrated than ever.
After being the target of Lakewood Capital Management, an activist hedge fund, RMR and its REITs have been on the edge. At a presentation to Select Income’s Board of Trustees in January, Lakewood raised serious concerns about the corporate governance and nominated a board member to “provide shareholders a voice.” Since then, Lakewood’s complaints, such as misaligned interests, entrenchment and absence of transparency, have echoed through the markets. RMR and its REITs have become, in effect, poster children for what is wrong in the REIT sector.
After Lakewood’s share of Select Income was purchased last March, the purchase of a significant portion of RMR by the REITs seems to be one more step to stave off activists and to try and fix the misalignment of interests Lakewood had raised. At NAREIT’s REITWeek conference this Tuesday, Select Income COO David Blackman clarified that RMR will become public and that the registration process has been underway. The management agreement between RMR and the REITs has also been extended to a twenty-year term. The RMR purchase raised new concerns regarding transparency and fairness as to the way the buying price was set.
Although this new step should mitigate RMR’s issues, the original owners (Portnoy family) will detain 91.4 percent of the voting rights (for an ownership of 51.6 percent). In addition, discussions over potential conflicts of interest have always taken precedence over the quality of the assets. NorthStar Realty Finance Corp (NYSE:NRF), a top-yield REIT in the Diversified Sector, has experienced an equivalent situation, and the share price continues trading below those of its peers. NorthStar segregated its management off into NorthStar Asset Management Group Inc. (NYSE: NSAM), which went public last year. If it hasn’t been working well for NorthStar, why would the situation with RMR and its REITs be any different?
Source: Select Income REIT
Written by Heli Brecailo
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