I have heard of some family owned REITs that are public. Given the shareholder rules, how do these families maintain absolute control over these REITs if a couple members can't own more than 50%? Are there two types of shares that the SEC will allow? Or language that allows them to stay in control regardless of ownership? Was just curious on how this works.
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I'm assuming they have multiple share classes. One with voting rights and the others with diluted or no voting rights whatsoever.
So some REITs I know:
Hersha Hospitality - family controlled, father started it, and kids took over. It seems like there is no way they could be removed from management
Apple Hospitality - Knight family controlled
There are other but cant think of top of my head right now.
My thoughts exactly about the share class as that would be against REIT rules, so how are they able to maintain control over operations since they can't own more than 50% plus you can't have two different share structures.
looks like only 5% insider ownership in their case. only one class of common and i suspect their preferred is nonvoting.
still not sure why you think a family should 'control' a company that is owned by the public. but if you're not referring to a strict definition of the word 'control' then i would say the answer lies in doing what you can to have a friendly board in place.
edit: speaking of, the Shahs have been buying their own shares like madmen. really cool company history as you might know, they started out dealing with the lowest seediest customer base in scorched-earth areas like Three Mile Island, they are probably tough old motherfuckers who will come out stronger on the other side of this battlefield... their book value 'leverage level' is only in the 50s, doesn't feel too high to me but i'm no expert
Yes by control I mean they can essentially never be removed. Im sure the Shahs will have their kids takeover and the family lineage will continue. So was just wondering how this works. Yes I get the board situation but the shareholders have enough votes to remove them if they wanted, but I was curious if there was some sort of protection clause about this.
I think this is more of a question of governance than ownership. A lot of public REITs are the results of a roll up of an owner's portfolio. After a roll up, management cant maintain a lot of control - retaining management of the company or even passing on that role to their heirs. This is why a lot of REITs feel like family companies. While you need distributed ownership to qualify for REIT tax treatment - it doesn't mean you need to cede control. REITs have historically had some very management friendly corporate structures: stacking the board with friendly faces, staggering board elections, external management agreements, and limiting the size of an ownership stake that can be accumulated by any one investor. This is why activism and hostile takeovers have been very rare in the space. Investors are getting wiser and governance is getting better, but this is still relatively prevalent...
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