On June 24th, shareholders of Equity Residential (EQR), a Maryland statutory real estate investment trust, voted in favor of a non-binding shareholder proposal concerning proxy access. Of the approximately 150 Maryland REITs traded on the New York Stock Exchange, the EQR proposal marked the fourth time in 2015 that equity holders of a Maryland REIT considered proxy access. Despite mixed results in the broader marketplace, the equity holders of every Maryland REIT to consider a proxy access passed the corresponding proposal.

Proxy access grants significant stockholders access to the corporate proxy statement for purpose of nominating directors or trustees. The EQR shareholder proposal, submitted by the Comptroller for the City of New York on behalf of New York City Pension Funds and modeled after the Securities and Exchange Commission Rule 14a-11, would permit holders of at least three percent (3%) of the outstanding EQR shares for three (3) continuous years to nominate up to twenty-five percent (25%) of the EQR board of trustees.

The EQR board of trustees recommended that shareholders vote against the proposal. In its proxy statement, EQR provided that while it “believes in the importance of providing long-term shareholders with a meaningful voice in electing trustees … the [board of trustees] also believes in the importance of its responsibility to protect the Company’s shareholders from special interests and counter-productive distractions.” The board of trustees further explained that the proposal was not tailored to the EQR voting and that nomination practices would promote special interests. In a joint letter to EQR shareholders, the California Public Employees Retirement System (CalPERS) and the New York City Pension Funds (through the Comptroller for the City of New York that submitted a number of proxy access proposals) encouraged EQR shareholders to vote in favor of proxy access. These shareholders argued that “[p]roviding access to a company’s proxy to permit shareowners the ability to nominate directors to the board is one of the most important rights given to the owners of a company.” CalPers and the New York City Pension Funds further argued that proxy access will benefit “the markets and the Boardroom.”  In response, EQR shareholders voted 56% to 44% in favor of the proposal.

While EQR and others now consider whether to implement successful precatory proxy access proposals, boards of other Maryland REITs are already taking action. In December 2014, the board of directors of Kilroy Realty Corporation (KRC), a Maryland corporation, adopted a proxy access bylaw. Of note, the KRC bylaw requires that a stockholder (or group of stockholders) beneficially own at least 5% for 3 years and limits the relevant group to no more than 10 members (the EQR proposal would permit up to 25 members). Similarly, Lexington Realty Trust (LXP), a Maryland statutory real estate investment trust, announced in its proxy that its board of trustees will be considering such a bylaw following the annual meeting. Regardless of your view of proxy access, and institutional investors have taken, the universal success of proxy access proposals among Maryland REITs is surely a sign of things to come. Food for thought as boards begin planning for 2016.

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