SAN FRANCISCO, April 26, 2016 /PRNewswire/ -- Girard Gibbs LLP, one of the nation's leading firms representing investors in litigation to correct abusive corporate governance practices and breaches of fiduciary duty, has announced that it is investigating the boards of trustees at Government Properties Income Trust (GOV), Hospitality Properties Trust (HPT), Select Income REIT (SIR), and Senior Properties Trust (SNH) (collectively, the "Managed REITs") for possible breaches of fiduciary duty relating to the 2015 formation of RMR Group, Inc. (RMR).
Girard Gibbs's investigation focuses on whether, in entering into the RMR transaction, the Managed REITs took sufficient steps to protect shareholders from harm arising out of the Portnoys' conflicts of interest. If you invested in any of the managed REITs and would like more information, please visit the firm's website or contact securities lawyer Adam E. Polk at (866) 981-4800.
The RMR Transaction
On May 28, 2015, RMR was incorporated for the purpose of strengthening the alignment of interests among RMR and the Managed REITs. RMR (a holding company) possesses a majority position in RMR LLC, the Managed REITs' external manager. As part of the RMR transaction, the Managed REITs paid $172.8 million for 15 million Class A economic shares in RMR that afforded Managed REIT shareholders only 4.5% of RMR's voting power. Through a special offering of Class B-1 and Class B-2 shares, Barry and Adam Portnoy—co-managing trustees at each of the managed REITs and RMR—acquired 85.7% of RMR's voting power. Additionally, the Managed REITs agreed to enter into new management contracts with their external manager, RMR LLC (also controlled by the Portnoys), each of which contains punitive termination fees that may serve to entrench RMR LLC.
Possible Harm to Managed REIT Shareholders
REIT analysts have long disfavored externally managed REITs and the conflicts of interest they create. In a recent research article about the Portnoy REITs, REIT analyst Green Street Advisors noted that "The externally managed REIT structure creates conflicts of interest that are so severe, we don't believe we can quantify the share price discount an investor should require to buy any of those companies. As a result, we have long deemed the Portnoy REITs to be 'uninvestable.'" By entering into the RMR transaction, the Managed REITs exposed their shareholders to external management by the Portnoys for the foreseeable future, which may threaten the value of their investments. Since the RMR transaction, the stock price for each of the Managed REITs has declined and underperformed Vanguard's REIT Index Fund.
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SOURCE Girard Gibbs LLP