New REIT Preferred Stock Prospectus Language Protects Preferred Stock Investors

Real Estate Investment Trusts (REITs) started including what has become a standard provision in their preferred stock prospectuses a little over a year ago. The new provision is a risk-lowering provision for preferred stock investors. But ironically, many of those who read it can easily misinterpret the new language as increasing their investment risk.

The new provision, usually prominently displayed within the first few pages, goes on at some length describing what will happen to shareholders in the event that there is a change of control of the company.

Many readers incorrectly assume that the company is trying to tell them, without actually telling them, that the company is looking to sell and that there may be a commensurate increase in risk to anyone considering buying the shares.

Companies are including the new provision to calm the fears of preferred stock investors but, without knowing the background, many prospective shareholders are scared off by the new language. As you'll see by the example below, the new language is actually not intended for investors, but, rather, as a warning to those intending on raiding the company's assets...

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