The pressure is on REIT boards to boost sagging share prices, and the longer prices are in the doldrums, the more board members are at risk of being removed from their positions by major shareholders, the Wall Street Journal reports.
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A recent example: last month, nine of the 13 members of Cleveland-based Forest City Realty Trust’s board agreed to step down after persistent, and unsuccessful, shareholder pressure to improve share prices. New board candidates more agreeable to major investors will stand for election at the 2018 annual meeting. Ultimately, 11 of the board's 13 directors will be independent.
Hedge funds Starboard Value and Scopia Capital Management, which hold 3% and 8.3% of Forest City’s shares, respectively, will each appoint one director to the board.
The move came after Forest City underwent a six-month strategic review and talks with more than 50 potential bidders that ultimately came to nothing. The company said making way for new board members will improve its governance structure for the benefit of stockholders.
The Forest City shakeup is unusual in the slow turnover, tightly knit world of REIT boards, which often originated as family businesses (indeed, until recently the Ratnors had a controlling stake in Forest City). Now analysts believe other boards might be ripe for shareholder action, especially as proxy season gets underway.
For instance, Land and Buildings Investment Management hedge fund is nominating its CEO, Jonathan Litt, to the board of Taubman Centers Inc. The move is the hedge fund’s second try at a board seat at the REIT. Litt has been critical of the way Taubman does things.
In an open letter to the Taubman board, Litt said, "We believe this pattern of lackluster performance is directly tied to [Taubman Center]’s resistance to — namely its desire to do the bare minimum when it comes to enhancing corporate governance and independent board oversight."
Besides asserting that share prices are underperforming, Litt also said that the two new members added to the board last year are not truly independent from the Taubman family.
Reshuffling board membership is part of a larger relational change between investors and REIT boards, the Journal reports. Now more investors than before are weighing in on executive compensation plans, and board diversity and turnover are being discussed more as well.
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