GOODWIN 43 consider waiving are those that are more broadly worded than the bare REIT qualification minimum, and only to the extent of such additional reach. 4. BENEFICIAL OWNERSHIP AND “GROUP” STATUS UNDER THE SECURITIES LAWS Let’s take the common case of a large investment management company seeking to acquire REIT shares in excess of the charter’s 9.8% ownership limit on behalf of one or more of its clients. In a typical scenario, the “clients” will be passive or actively managed funds or mutual funds of various size, strategy and sector focus: • If the ownership limitation provisions in the relevant REIT charter is of the first type listed above (i.e., treats entities such as corporations and partnerships as “persons” but does not treat a “group” as a “person”) then neither the investment management company nor any individual fund can acquire REIT shares in excess of the 9.8% ownership limit absent a waiver of the ownership limit. However, because the management company and each individual fund is a separate person for this purpose, each of them can own up to 9.8% of the REIT’s shares for its own account. Moreover, a fund’s ownership in excess of the 9.8% ownership limit typically should not adversely affect the REIT’s compliance with the 5/50 test and the board would have the ability to consider waiving the broad ownership limit after weighing all relevant facts and circumstances (including whether any single fund will own in excess of 9.8% and, if so, whether that fund’s ownership could result in a related party tenant issue as described below). • If the ownership limitation provisions in the relevant REIT charter is of the second type listed above (i.e., treats entities such as corporations and partnerships as “persons,” as well as Section 13(d) “groups”) then, as above, neither the investment management company nor any individual fund can acquire REIT shares in excess of the 9.8% ownership limit absent a waiver, and, if the investment management company and/ or its affiliated funds act together as a “group” in the acquisition, disposition, voting or holding the REIT shares, then the aggregate holdings of the investment management company and all affiliated funds cannot exceed the 9.8% ownership limit absent a waiver. However, because the funds’ aggregate ownership in excess of the 9.8% limit typically should not adversely affect the REIT’s compliance with the 5/50 test, the board would have the ability to consider waiving the broad ownership limit after weighing all relevant facts and circumstances (including whether any single fund will own in excess of 9.8% and, if so, whether that fund’s ownership could result in a related party tenant issue as described below). To be sure, the determination of “group” status is a highly fact-dependent analysis that has historically been difficult to apply, particularly in the age of increased shareholder activism.14 For example, if two or more otherwise unaffiliated investors jointly approach the REIT to discuss strategic alternatives or to propose corporate governance changes, then these investors are clearly acting as a “group” and their collective ownership would be aggregated for purposes of Section 13(d) and thus under the ownership limitation provision, as applicable. But what if two or more otherwise unaffiliated investors speak to each other on a regular basis generally about the REIT and its prospects — at what point, if any, do they become a “group”? Likewise, even historically passive asset management organizations such as pension plans and mutual funds have recently taken actions that may be viewed as attempts to influence companies’ internal policies and procedures. When would an investment manager and its client funds constitute a “group” under these circumstances? Rule 13d–5(b) under the Exchange Act simply provides that a group is formed when “two or more persons agree to act together for the purpose of acquiring, holding, voting or disposing of equity securities of an issuer.” The courts have confirmed that a writing or other formal agreement is not necessary to form a “group,” and that no actual acquiring, voting or disposing of securities has to occur. It is enough for two or more stockholders to act together in furtherance of a common objective.15 While, as above, the determination of “group” status in any given instance can be subjective and fact-specific, in the context of an investment management company and its client funds the analysis can begin with a very objective 14 With the aim of curbing the potential for abuse when activist hedge funds form loose associations of “wolf packs,” in May 2016, Senators Tammy Baldwin of Wisconsin and Jeffrey A. Merkley of Oregon introduced the “Brokaw Act,” a bill that would, among other things, expand the definition of “person” for purposes of Section 13(d) to specifically include persons acting together as a group to “control or influence the board, management or policies” of a public company, as well as shorten the number of days that activists have to disclose newly acquired stock, whether held directly or in the form of derivatives. See https://www.baldwin.senate.gov/pressreleases/ brokaw-act. 15 See, e.g., Wellman v. Dickinson, 682 F.2d 355, 362-64 (2nd Cir. 1982) (“Touchstone of ‘group’ [. . .] is that the members combined in furtherance of a common objective, but concerted action of the members of the group need not be expressly memorialized in writing”); Morales v. Quintel Entertainment, Inc., 249 F.3d 115, 124–25 (2d Cir.2001) (“Whether the requisite agreement exists is a question of fact. The agreement may be formal or informal and may be proved by direct or circumstantial evidence. Moreover, the alleged group members need not be committed to “acquiring, holding, voting, or disposing of equity securities” on certain specified terms, but rather they need only have combined to further a common objective regarding one of the just-recited activities.”) (internal citations omitted).