Jim Hanks, a partner at Venable LLP, participated in a video interview at Nareit’s REITwise: 2018 Law, Accounting & Finance Conference in Hollywood, Florida.
Hanks noted that more than 80 percent of REITs are formed under Maryland law. Some of the benefits of incorporating in Maryland include: the absence of a franchise tax; the ability for directors to increase the authorized stock without a shareholder vote; the ability for directors to reverse-split the stock without a stockholder vote; and, a stable statute concerning the duties of a director.
As for some of the key trends in corporate governance, Hanks noted that shareholders seem more willing to depart from the views of Institutional Shareholder Services (ISS). In addition, REITs are engaging more with their shareholders on a continuing basis, rather than just in response to the annual meeting, he added.
Meanwhile, Hanks pointed out that only a minority of REITs incorporated in Maryland have given their stockholders the power to amend byelaws.
If a REIT does decide to act, Hanks said they should focus on the requirements for a shareholder to initiate a direct byelaw amendment proposal. Assuming a proposal is validly made, REITs should look at the level of vote required to enact change. “We think a bare majority is a pretty narrow margin,” he said.