■ Structural Lock-Up of Existing Stockholders– Because most non-listed REITs have a substantial number of outstanding shares held by a widely dispersed group of stockholders, it is impractical for a company and the underwriters to enter into lock-up agreements with all existing stockholders that restrict their ability to sell shares immediately following the IPO. See “Controlling Your Shares and Lock-Ups.” Therefore, in order to provide for an orderly market and prevent existing stockholders from selling their shares immediately after the IPO (which would exert downward pressure on the trading price), many non-listed REITs effect a recapitalization to provide for a structural lock-up of existing stockholders. There are a variety of options for such a structural lock-up, and the company will work with its underwriters and counsel to determine the best structure for the company, balancing the competing desires for a successful IPO and liquidity for existing stockholders. ■ Stock Split – In connection with a structural lock-up described above or in order to achieve the desired public offering price per share in the IPO, a non-listed REIT may need to effect a reverse stock split or, less frequently, a forward stock split. Under the MGCL, a Maryland corporation with a class of equity securities registered under the Exchange Act can amend its charter, without a stockholder vote or other stockholder action, to effect a reverse stock split at a ratio of not more than ten shares into one share in any 12-month period. ■ Charter Amendments – In addition to charter amendments related to the structural lock-up and stock split, a non-listed REIT considering an IPO will need to review its governing documents to consider what other amendments are necessary or advisable in connection with the offering and listing, such as removal of provisions required by the North American Securities Administrators Association. The IPO timeline will need to account for any amendments that require stockholder approval. ■ Internalization of Management – Most non-listed REITs are externally managed. A non-listed REIT considering an IPO should consider internalizing its management team in connection with the IPO due to the negative perceptions of externally managed REITs in the public markets. 5 | 2024 Guide to REIT IPOs and Listing Transactions
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