In a series of shareholder proxy proposals, various Lightstone REITs (specifically, Lightstone Value Plus REIT I, Inc., Lightstone Value Plus REIT II, Inc., and Lightstone Value Plus REIT III, Inc.), have requested approval to amend their respective charters to remove multiple NASAA shareholder protections.
Key charter amendments sought include:
- Eliminating durational provisions that require the Lightstone REITs to seek a listing on a national stock exchange by their respective 8th or 10th (in the case of Lightstone II) anniversaries of the termination of their respective public offerings, or otherwise seek liquidation. The Lightstone REITs’ respective boards of directors have noted that elimination of the deadline to liquidate and dissolve the programs is advisable to allow flexibility in pursuing various ways to provide liquidity to stockholders.
- Eliminating fiduciary duties that the boards owe to the Lightstone REITs and shareholders and the directors’ fiduciary duties to supervise the relationships of the Lightstone REITs and their external advisors. The board believes reducing its obligations “will improve our ability to retain and recruit board candidates.”
- Elimination of certain protections in the event of a roll-up transaction, including appraisal rights for shareholders, and the ability to retain securities in their previous entity or receive cash in lieu of securities in another entity. Regardless of the approval of this prospective charter amendment, any prospective roll-up transaction involving Lightstone REITs would still require the approval of the respective shareholders of the REIT seeking to merge into another REIT.
- Eliminating quorum requirements of at least 50% of all votes entitled to be cast at a stockholder meeting. Quorum provisions may subsequently be reduced to as little as 33% of votes entitled to be cast upon the addition of a third independent director to the respective Lightstone REIT boards.
Other charter amendments are sought in the proxy proposals as well.
According to the management team of the REITs, they are pursuing these charter amendments as they do not anticipate raising capital in a public offering in the future and that the NASAA-mandated limitations “impose an administrative burden on the [Lightstone REITs] and could put us at a competitive disadvantage relative to our competitors whose charters do not contain these restrictions.”
In an analysis of the Lightstone proxy requests, third-party due diligence provider FactRight notes, “…that elimination of these charter provisions will generally reduce shareholder participation in the governance of the respective REITs, enhance the power of the respective boards of directors, and eliminate protections for shareholders, including provisions that seek to guide the Lightstone REITs toward liquidity events for shareholders, which are long overdue in our opinion.”
The Lightstone REITs reported cumulative total assets of approximately $900 million as of June 30, 2022. Debt-to-total assets ranged from 41% to 49% of each of the Lightstone REITs as of that date. The Lightstone REITs were declared effective beginning in 2006 (Lightstone I), 2009 (Lightstone II), and 2014 (Lightstone III).
The annual meetings of stockholders of the three Lightstone REITs are all scheduled to be held on Dec. 8, 2022. Approval of the requests to amend and restate the REITs’ charters require the affirmative vote of a majority of all votes entitled to be cast at the annual meetings. Abstentions and broker non-votes will have the effect of a vote against the proposals.