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Subject:  Re: CWH Earnings and much more.. Date:  3/3/2013  7:04 PM
Author:  Reitnut Number:  73805 of 83812

There isn't much I can add to the lengthy discussion on this Board about CWH and the very interesting effort by Related and its co-investor to wrest control of the company from the Portnoys. But here are a few thoughts:

1. Many believe that CWH and related companies are run for the benefit of the Portnoys, not the shareholders. The conflicts of interest inherent in the entire structure are so rife that Green Street calls these companies "uninvestable." It therefore doesn't follow any of the Portnoy-controlled REITs.

2. There have been very few successful hostile takeovers in the REIT industry. This is probably due to some inherent REIT issues, such as the "five or fewer" rule, and also because, until recently, the ownership of many REITs has been concentrated in the hands of "founding families." Also until recently, many REITs built into their governing structures such defensive mechanisms as staggered Boards, poison pills, super-majority requirements, etc. These barriers have been eroding over the past few years, but not at CWH and related companies.

3. Another obstacle in the CWH situation is the management contract that CWH has entered into with the Portnoy-owned company. Can this be terminated, or cancelled? Much depends on the courts, but this may be a large hurdle for Related to overcome.

4. The "five or fewer" rule does, indeed, apply to the latter part of a REIT's fiscal year. Whether Related can avoid this rule by taking control in the first six months of the year, and then disposing of its ownership in the second half I just do not know. Presumably Related has discussed this with a knowledgeable REIT lawyer.

5. It will be an uphill battle for Related - and yet, if enough shareholders are willing to side with them, they may succeed. The stock price is trading well below the offered price of $27, but also well above the price at which CWH traded before the fireworks began. This would suggest that the situation is very much up in the air.

6. I recall reading somewhere that the Portnoys have a very tiny stock ownership in CWH. Thus they would benefit little from a successful change in control, and will fight to the death to maintain control. And, they no doubt have a huge war-chest that they can deploy.

7. As to whether or not this episode could hurt the REIT industry, I think there's nothing to worry about there. I don't know of a public REIT of any size that has an outside advisory relationship like this one. And that's a very good thing.

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