Granting REIT shareholders the right to initiate bylaw amendments

Update: Shareholders at three lodging REITs have approved management charter amendments granting shareholders the right to initiate bylaw amendments: Host Hotels [NYSE: HST], Diamondrock Hotels [NYSE: DRH] and RLJ Lodging [NYSE: RLJ].   Unofficial results from Chesapeake Lodging [NYSE: CHSP] suggest a majority of shareholders support establishing the same rights there (while voting down any additional ownership restrictions on the ability to propose bylaw amendments).

Shareholders’ right to initiate bylaw amendments is well established – just not in Maryland.

At many companies, shareholders can pursue corporate governance reform through either recommendations to the board or through binding bylaw amendments.

Because many REITs are incorporated in Maryland, their shareholders cannot initiate binding bylaw amendments unless this right is affirmatively established by the company’s governing documents.

In Delaware, where many hospitality C-corporations are incorporated, shareholders have this right by law (DGCL Sec. 109).

By our count, fifteen listed lodging companies currently permit shareholders to initiate bylaw amendments, including six lodging REITs (Table 1).  None of these companies set a higher ownership threshold to propose binding rather than precatory proposals.

Table 1: Listed lodging companies currently allowing shareholders to initiate bylaw amendments

Company State of incorporation Corporate structure Increased ownership requirement
AHT MD REIT No
APLE VA REIT No
RHP DE REIT No
SHO MD REIT No
CDOR MD REIT No
ESH REIT DE REIT (paired with C-corp) No
Hilton DE C Corp No
Hyatt DE C Corp No
Marriott DE C Corp No
Morgans DE C Corp No
Laquinta DE C Corp No
Wyndham DE C Corp No
Choice DE C Corp No
Belmond Bermuda C Corp No
Extended Stay DE C Corp No

 

Shareholders have shown broad support for the right to initiate bylaw amendments

Shareholders at four listed lodging REITs voted on a substantially identical proposal in 2015 (Table 2). The average vote was 69% in favor.

Table 2: Recent shareholder votes at listed lodging REIT: Shareholder right to initiate bylaw amendments

Company Votes cast in favor Year voted
Chesapeake 49% 2015
Diamondrock 72% 2015
Host 80% 2015
RLJ Lodging 73% 2015
Average 69%

Companies where a majority of shareholders voted in support of the proposal have now recommended shareholders approve charter amendments that would establish their right to initiate bylaw amendments.

With the support of many other shareholders, UNITE HERE has achieved clear gains in corporate governance at listed lodging REITs, both through the engagement process and through the ballot box (see http://www.hotelcorpgov.org for more details).

For further information, contact JJ Fueser at [email protected]