Published May/June 2014
AS THE ARTICLE on “The Capital of Transparency” in this issue of REIT makes clear, transparency is entral to the REIT business model and the value that REITs deliver to
For stock exchange-listed REITs, transparency begins with the requirements that all listed companies must satisfy. Publicly listed REITs must comply with SEC reporting requirements and the disclosure requirements of the exchanges on which they are listed.
Transparency is central to the REIT business model and the value that REITs deliver to their
Additionally, they must communicate constantly with investors, who closely follow their operations and financial performance, and securities analysts, whose recommendations can immediately impact the value of their stock. Exchange-listed REITs also operate in the spotlight of the financial news media, where reporters and columnists provide their own perspective on the quality of management decision-making.
Unlike other publicly listed companies, however, REITs must meet an additional standard of transparency. It is the transparency that results from a business model that requires REITs to pay out their income to their shareholders as dividends. The unique REIT dividend requirement makes it necessary for listed REITs to regularly return to the public capital markets to obtain the funds that they need to execute their business strategies. Raising those funds requires REIT management teams to open their playbooks to investors, explain their plans and justify their use of investors’ money.
The need to have the validation of the capital markets for business strategies producesa higher level of discipline among REIT management teams in allocating capital and managing assets. The REIT industry has built a track record of exercising that discipline, and, as a result, the capital markets consistently have met the industry’s needs.
The public markets provided the funds that were needed to recapitalize the industry in 2009 and 2010 in the wake of the Great Financial Crisis. That capital fostered the industry’s growth in the subsequent years. Listed REITs then set successive records for annual capital raised in 2011, 2012 and 2013.
The capital markets expect performance in return for their investment, and the disciplined management practices fostered by REITs’ transparency have helped REITs deliver on that expectation, as well. In the 30-year period that ended with last year’s third quarter – the latest quarter for which direct real estate performance data are available – listed equity REITs delivered average annual total returns of 9.96 percent, compared with 8.82 percent for opportunistic real estate funds, 5.77 percent for value-add funds and 5.70 percent for core funds, as measured by the NCREIF/Townsend Fund and NCREIF ODCE Indices.
Transparency is a foundational element of the REIT investment proposition – one that is significantly responsible for the value REITs provide to their investors. That value will be in sharp focus at REITWeek 2014: NAREIT’s Investor Forum, which is taking place from June 3-5 in New York. I’ll be there, and I hope to see you there, too.
RONALD L. HAVNER, JR.
Chairman, President & CEO