In the examination of CommonWealth REIT (CWH) we must first state the obvious. It is an exceptional value, but plagued by the clear conflict of interest of its management. First, we will take a look at 3 types of strange activity by CWH and then form a concept of where the stock is headed.

Strange activity

1) In August CWH issued $175mm of 30 year 5.75% unsecured notes and used the proceeds to fund the redemption of its 7.125% Series C Preferred shares. In today's low interest rate environment refinancing of this nature is quite standard, so why do I consider this strange activity? Well, it seems odd to buyback 7.125% preferred shares at full liquidation preference when CWH could have instead repurchased common shares costing them over 13% in dividends. With the common trading under 50% of book value, such a maneuver would have been immediately accretive while reducing dividend costs to the company by more than redemption of the preferred.

2) Management of CWH announced intent to reposition its portfolio in favor of properties located in CBDs. With this has come the sale of various suburban offices to free up capital for acquisitions. While offices located in CBDs are in fact performing better in the current environment, the acquisition price is raised accordingly. RMR is functionally selling low and buying high. READ FULL ARTICLE HERE