NEW YORK (AP) — Shares of CommonWealth REIT soared to their highest point in more than a year Tuesday after two of its shareholders said the stock is undervalued and that they're willing to buy the rest of the company.
THE SPARK: Corvex Management LP and Related Fund Management LLC said that they feel CommonWealth REIT's portfolio of real estate assets is undervalued. Corvex and Related own about 9.8 percent of CommonWealth's stock, combined.
Corvex and Related said in a letter sent to CommonWealth's board that the company needs to immediately stop its stock offering and debt repurchase.
On Monday CommonWealth announced that it started a tender offer to buy up to $450 million of some senior notes due in 2014, 2015 and 2016. It also announced a public offering of up to approximately 31.1 million shares, with the proceeds being used to buy back the notes.
Corvex and Related said that if they don't receive a response, they would look to have CommonWealth's board removed and would want to replace them with five independent trustees.
The companies also said that they would be ready to buy all of CommonWealth's outstanding stock at a "significant premium" to its current market value.
THE ANALYSIS: Michael Bilerman of Citi Investment Research said in a client note that the stock offering would reduce leverage and be a positive from a balance sheet perspective. Still, the analyst said he's disappointed in CommonWealth's asset sales execution.
Stifel Nicolaus' John Guinee said that the stock offering and debt repurchase strategy would be very dilutive to CommonWealth's funds from operations.
Funds from operations, or FFO, adds such items as amortization and depreciation to net income, and it is considered a key measure of the strength of a real estate investment trust. Amortization and depreciation are accounting tools used to measure the value of a long-term asset over time.
Both Bilerman and Guinee maintained "Sell" ratings.
SHARE ACTION: CommonWealth REIT's stock rose $5.37, or 33.9 percent, to $21.22 in afternoon trading. The shares touched $22.30 earlier in the session, their highest level since August 2011.