07-24-2023 News Update

Event-Driven Opportunity

RE: Merger of Externally Managed Commercial REITs

by the CEO at Exceedant, Randy Airst with our Research Team

The following pertains to an event-driven topic that Exceedant has been engaged by institutional clients. You can learn more about Exceedant products and services at: https://exceedant.com or follow us on Linkedin at Exceedant.


Back to the Future?

Is this Corner of the Commercial Real Estate Market Reminiscent of 2013?

In 2013/2014 RMR was battling with activist shareholders Related and Corvex over the fate of externally managed CommonWealth REIT. Eventually, Related and Corvex prevailed, with a team that included legendary investor Sam Zell. While the vast majority of REITs are managed internally, RMR provides external REIT management for companies such as Diversified Healthcare Trust (DHC) and Office Properties Income Trust (OPI). In exchange for its external management of these REITs, RMR receives a variety of compensation, including but not limited to Property Management Fees and Business Management Fees. DHC and OPI are slated to merge, with an August 30th vote scheduled. Heading into their putative merger, both companies are carrying baggage. OPI is in the office sector, with macro headwinds including high vacancy rates, shorter term renewals and tenant concessions which materially reduce net effective rents. OPI has its own challenges such as the percentage of leases maturing over the next several years. DHC is also battling macro headwinds, which include high vacancy levels in senior living communities. DHC also has a variety of its own challenges such as those pertaining to loan covenants as well as substantial capital expenditures.

Ten years ago, the battle over Commonwealth REITs fate featured RMR, Corvex and Related. Today, RMR is pitted against companies such as D.E. Shaw.

For those seeking to handicap the outcome, a review of the 2013/2014 dispute between RMR, Corvex and Related may be in order.

After all,

“Those who fail to learn from history are doomed to repeat it.”

Winston Churchill

#CommercialRealEstate #RMR #OPI #DHC #DEShaw #FlatFooted #LoneStarCapital #H/2 #BryanMaher #REIT