4/3/2020 | By Sarah Borchersen-Keto
REITs need to take a proactive stance to ensure they are ready to deal with activist investors that could emerge in the wake of the current coronavirus market uncertainty, according to a REIT corporate governance expert.
John Haggerty, co-chair, public M&A/corporate governance at Goodwin, told an April 2 webinar that activist investors see increased buying opportunities in the current environment “and are sitting on a lot of cash that has long-duration lockup, so they’ve got it there to use.”
Haggerty noted that activist campaigns are unlikely to emerge in the short term, however, activists are likely to now be busy with identifying potential targets and buying depressed shares “so that when the dust settles and valuations stabilize” they will be ready to act.
A similar situation occurred following the financial crisis, Haggerty said, when the number of non-REIT proxy fights increased 14% and the number of unsolicited M&A transactions doubled in 2008 and 2009.
Haggerty also pointed to speculation that institutional investors are going to have liquidity needs after the crisis, and “will be more open and amendable to the arguments that activists make to trigger liquidity events.”
There are a number of steps REITs can take to lessen their vulnerability to activist investors or other hostile takeover agents, according to Haggerty. Those steps include keeping the board involved as to how the business plan is changing so that board members can articulate and defend it in front of activists.
Haggerty added that formulating long-term business plans is also important to ensure a company can communicate its narrative to counter any sort of activist pressure that emerges. Also, having a dedicated team in place and ready to deal with activists is important “because you’re going to want to move quickly,” he said.
Knowing who is buying your shares is another key consideration, according to Haggerty. In addition, he stressed the need to communicate with shareholders in order to bolster a company’s long-term credibility.
Meanwhile, Haggerty added that many REITs are opting to hold virtual annual meetings this year. This is preferable to a postponed meeting to update the shareholders, he said, and he noted that it means that the deadline for director nominations by activists will already have passed for this year.