GOODWIN 45 • when the REIT seeks to engage in shareholder outreach, either generally or in connection with a specific proposal, there is a single address, phone number and/or contact person or department to which inquiries for all consolidated shares are directed; • the investment management company emphasizes or notes the aggregate holdings of its client funds when communicating with the REIT or when otherwise addressing its consolidated investment in the REIT (e.g., mailing a letter to the REIT advocating for change in the REIT’s internal governance policies). While none of these alone may be dispositive in determining whether a “group” exists, these and similar facts and circumstances may be seen as persuasive by the REIT’s board of directors in discharging its duty to interpret and enforce the REIT’s charter provisions. 5. WAIVER CONSIDERATIONS If, following a careful review of the relevant charter provisions, the REIT’s ownership limit is of a type that can be waived because it is drafted more broadly than strictly necessary to protect the REIT’s tax status, what are the primary concerns and considerations the board must evaluate before granting a waiver to the investment company manager and/or any or all of the affiliated client funds? First and foremost, as above, a properly drafted charter will not permit the board to waive any provision of the charter necessary to protect the REIT’s essential status as a REIT under the Internal Revenue Code. To be clear, if the acquisition of REIT shares by an investor who has the benefit of a waiver would cause the REIT to fail the 5/50 test, have fewer than 100 shareholders or fail the REIT gross income tests due to related party rent — then in all cases the charter provisions providing for automatic transfer of shares to a charitable trust must always kick in and preserve the REIT’s tax status, regardless of how the waiver may or may not be crafted. Second, the board must determine whether the requesting investor (for example, the investment management company here) is the type of investor whose ownership of a significant percentage of the REIT’s outstanding shares is likely to be beneficial to the REIT’s stockholders as a whole. In many cases, large investment company managers and their client funds are exactly the types of investors the REIT is seeking to attract — professional money managers with robust allocations to REITs and with a history of long-term investing in the sector. Indeed, these are the institutional investors who, through their client funds, collectively own a very sizeable amount of aggregate publicly traded REIT market today. A REIT’s board of directors would thus be well justified in concluding that increased ownership by this type of institutional investor would bode well for the REIT and its stockholders as a whole, and that an appropriately tailored waiver of the ownership limit is warranted, so long as it does not create a REIT qualification concern. Conversely, the board of directors could likewise determine that increased ownership by shorter term investors, such as hedge funds, arbitrage funds and other funds with alternative investment strategies may not be beneficial in the long term for the REIT’s stockholders as a whole, inasmuch as the short-term goals and activities of these investors can occasion increased volatility and speculation in the stock. The board could thus conclude that granting a waiver that would permit this type of investor to increase its ownership above the ownership limit applicable to all other investors would not be in the REIT’s best interest. We note in this regard that the corporate statutes of many states, including Maryland22 and Delaware,23 specifically permit a company’s organizational documents to provide for restrictions on transferability and ownership for any lawful purpose.24 Similarly, we note that each waiver request must be independently evaluated and considered by the board of directors in 22 See Section 8-203 of the Maryland General Corporation Law (authorizing the organizational documents of a Maryland REIT to allow “[f]or any other preferences, rights, restrictions, including restrictions on transferability or ownership designed to permit the real estate investment trust to qualify under the Internal Revenue Code or regulations adopted under the Code or for any other purpose, and qualifications not inconsistent with law” (italics added). 23 See Section 202[(e)] of the Delaware General Corporation Law (authorizing any “lawful restriction on transfer or registration of transfer of securities, or on the amount of securities that may be owned by any person or group of persons”). 24 While beyond the scope of this article, in our REIT Alert “Barbarians at the (REIT) Gates” we noted the possible anti-takeover effect of broadly worded ownership limitation provisions and their overlap with more traditional anti-takeover devices. For example, we noted that “a REIT whose ownership limitation provision is drafted so as to restrict accumulation of large blocks of stock by investors not approved by the board — even if the accumulation does not present a REIT qualification concern from a U.S. income tax perspective — may feel less of a need to have the ability to unilaterally adopt a shareholder rights plan.” Conversely, the typical shareholder rights plan might serve as a more effective deterrent to a determined activist or other hostile acquiror of shares since the effect of triggering a rights plan (immediate and catastrophic dilution of the triggering stockholder’s economic interest) is far more draconian, at least from an economic perspective, than application of the typical REIT charter’s mandatory transfer provisions (pursuant to which the economic value, measured at the time the limit is exceeded, of the shares owned in excess of the ownership limit is largely retained, even though appreciation in value, or distributions received, after the deemed transfer to the trust are disgorged).