This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

Commonwealth REIT: After A Sweet Ride, I Sold Everything

Stocks in this article: CWH

Sometimes, you take the gifts the market gives you. This is how I felt when I saw shares of Commonwealth REIT (CWH) jump so sharply in late February.

CWH Chart

CWH data by YCharts

When I first purchased shares of Commonwealth for my Dividend Growth Portfolio, it was a stock that had been left for dead. Wall Street hated management, earnings had been disappointing for months, and the stock had lost nearly half its value over the previous two years.

But the REIT was cheap, trading at barely half its book value, and the share price looked to have finally stabilized. In my opinion, it seemed a decent contrarian bet for the next 2-5 years. The value of the underlying properties limited my downside risk, and I could continue to collect the dividend indefinitely.

There was always the possibility that the dividend would be cut—and in fact it was late in 2012. But even at the reduced yield, Commonwealth paid a better dividend than most of the alternatives. All told, Commonwealth seemed like a very reasonable investment. No matter how incompetent management could be, I believed it would be hard to lose with a portfolio of high-quality properties selling for well below their book value. Or so I thought…

You can never put it past management to do precisely the wrong thing at the wrong time. Rather than buy low and sell high, public companies have a bad tendency to do the opposite. They often buy back their shares when prices are high and issue new shares when prices are low — a destruction of shareholder wealth that should be unforgivable.

Commonwealth recently announced plans to massively dilute shareholders with a new offering of more than 30 million shares. Not only was this a dilution of nearly 40%, but the shares were being offered at a 43% discount to book value.

While I was pondering selling, two large shareholders, Corvex Management and Related Fund Management, sued the company for breach of fiduciary duty and offered to buy the company for $27 per share. Corvex and Related claimed that an independent assessment of Commonwealth’s properties put the value of the REIT at $40 per share. The stock jumped.

Maybe Commonwealth is worth that, and maybe it isn’t. But in a situation like this, it generally doesn’t make sense to find out. At time of writing on March 5, Commonwealth is trading for a little less than $24 per share. If the Corvex and Related offer at $27 was approved, investors would be looking at 12-13% gains in a very short period of time. But what if it isn’t approved?

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,827.75 +12.81 0.07%
S&P 500 2,072.83 +5.80 0.28%
NASDAQ 4,787.3170 +29.0650 0.61%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs