An important REIT investment characteristic is that the assets are identified and easily valued independently. Investors and analysts can see the buildings, drive by them and often walk in them. They are real and tangible assets.
Some exchange-listed REITs are held to the same standards and requirements as other publicly traded companies. Listed REIT reporting is governed by the Securities & Exchange Commission, Generally Accepted Accounting Principles, and the various stock exchanges on which their shares trade. Listed equity REITs also report Funds From Operations (FFO) as a supplemental earnings measure in their financial statements. FFO is often cited by academics as the most reliable metric by which to value property owning real estate companies.
Management Aligned With Shareholder Interest
Studies have shown that investments tend to perform better when there is a material amount of capital invested by management, up to approximately 25 percent. REIT managements typically have appreciable equity holdings in their companies. Academic research shows that firm value is positively related to insider holdings, especially when institutional investors are also large stockholders, and also positively related to RiskMetrics Group governance scores.
Value of Independent Analysis
Listed REIT investors benefit from a robust group of stock analysts that follow REITs. Independent analysts, including REIT-focused analysts, provide valuation estimates for the assets owned by REITs.
Capital Market Discipline
Market transparency, alignment of interest, and independent analyst coverage all help to promote capital market discipline, under which participants in the capital markets help ensure that listed REIT executives consistently make decisions in the best interests of investors. Private real estate investments do not benefit from the same degree of transparency, alignment of interest, or analyst coverage, and do not operate under the same degree of public market discipline.
The chart below shows that listed equity REITs have historically tended to purchase assets at the most favorable times for asset purchases, and sell them at the most favorable time for asset sales, while private equity real estate investment managers have often been on the other side of the trade.