Shareholder activism in the REIT sector
Shareholder activism is a critical issue facing US REIT management teams and boards of directors. Activist campaigns often make a variety of recommendations to best maximize shareholder value. The process of achieving this can, however, be highly disruptive to a REIT’s day-to-day activities, and particularly to its management team, which needs to deliver a response.
REIT management teams have to do this within the confines of regulatory restrictions around investor communication, which often puts them at a disadvantage in terms of the wider-market messaging. The result is that for a REIT management team, activist involvement is a significant burden.
Our analysis identified five REIT-specific themes that are intended to maximize shareholder value:
- Corporate governance - Electing alternative or independent directors, improving board representation, reducing control over shareholder’s voting power
- Shareholder rights - Enforcing fiduciary rules, eliminating dual-class stock structure, opting out of the Maryland Unsolicited Takeovers Act (MUTA)
- Management structures - Reviewing management structure, compensation and termination fees
- Strategic direction - Reviewing capital allocation and investment strategy
- Alternative strategies - Exploring potential sale, merger, privatization, spin-out; force or oppose sale; exploring share buy-back and debt reduction
REIT activist themes − areas of focus in the real estate industry
REIT activists’ demands reflect the wider trend of institutional investors reshaping the corporate governance landscape and challenging how boards think about fundamental issues such as strategy, risk, capital allocation and board composition. REITs are responding to investor demands by engaging more often and directly with shareholders in an effort to improve transparency and accountability.
Turning a critical eye inward toward your business is a vital practice. Scrutinizing your business through the eyes of an activist may ultimately lead to changes that maximize shareholder value.