NewsBrief (December 17, 2012)

December 17, 2012

Message from the President

As articles in this issue of NewsBrief report, the Financial Accounting Standards Board last week reached two favorable decisions for the REIT industry. They agreed, for the near term, to exempt all REITs from having to report their financial results in the format used by investment companies – a format that would not be useful for REIT investors. They also agreed to modify their guidance for reporting discontinued operations in a way that would help simplify and clarify REITs' financial statements.

NAREIT actively advocated for these decisions over the past year as part of our broad-ranging program of advocacy on behalf of the REIT industry. In the Policy and Politics arena in 2012, we also continued to build understanding and support for the REIT investment proposition among members of Congress, advocating, for example, for legislation to reform the Foreign Investment in Real Property Tax Act to remove barriers to cross-border investment in REITs. We also continued to build support for initiatives such as updating and streamlining the REIT rules.

In the Research and Investor Outreach area, we held a record number of meetings with retirement plan sponsors, investment managers and consultants to promote REIT investment. NAREIT conducted 409 of these meetings with organizations representing $44 trillion in assets in 2012, compared with 317 meetings in 2011. We also introduced new research about the benefits of REITs in target date funds, as well as innovative new products, like the Green Property Indices covered in this issue, to promote REIT investment among a broader range of investors.

In our Meetings area, we presented a schedule of informative conferences in which nearly 5,000 members of the REIT and investment communities participated over the course of the year.

In the year ahead, our industry will face new challenges and opportunities. NAREIT will be advocating for REITs as we constructively participate in the discussions of fiscal and tax policy that will be front-and-center in the 113th U.S. Congress. We also will be expanding our investment research agenda with new studies that will explore the benefits of REITs in retirement portfolios. Additionally, we already are working on a new schedule of high-value conference programs.

We look forward to working with you on these important initiatives in the year ahead, and we wish you a wonderful holiday season.

Steven A. Wechsler
President and CEO


FASB Agrees to Exempt All REITs from Phase One of Investment Companies Project

NAREIT observed the Financial Accounting Standards Board's (FASB) Dec. 12 meeting that addressed how the board should proceed on the Investment Companies project as it may relate to real estate investments. The board agreed that the accounting for real estate investments should be considered in a second phase of the project and that all REITs should be exempted from conclusions reached in Phase One of the project. NAREIT has consistently advocated the exclusion of both equity and mortgage REITs from the Investment Companies standard.

The board did not agree on the scope of Phase Two of the project. The overarching issue identified is whether the scope will be limited to accounting for real estate investments only in the context of the Investment Companies standard or whether the scope would include accounting and reporting for investments in real estate more broadly. There was significant discussion as to whether Phase Two, if it considers investments in real estate more broadly, should consider accounting and reporting for real estate investments/investment property based on the definition/characteristics of the asset (an asset-based approach) or be based on the characteristics of the entity holding the property (an entity-based approach).

Previously, the board pursued an entity-based approach in its Investment Property Entities proposed standard. That project was subsequently eliminated from the board's agenda due to the difficulty that the board encountered in developing the definition of an "investment property entity."

(Contact: Christopher Drula at

Discontinued Operations Also on FASB's 2013 Agenda

Also at its Dec. 12 meeting, the FASB discussed its proposed accounting standards update focused on accounting for and reporting discontinued operations. The board agreed to issue a proposed accounting standards update early in 2013 and to provide a 150-day comment period.

The proposed update would redefine a discontinued operation, converging with the international standard, which defines a discontinued operation as a component of an entity that represents a separate major line of business or geographical area of operation. This definition would eliminate the great majority of discontinued operations reported by NAREIT member companies. The proposed update would require certain disclosures with respect to a discontinued operation, as well as meaningful disclosures with respect to dispositions of components of an entity that do not rise to the level of discontinued operations.

NAREIT has advocated this specific modification to the definition of a discontinued operation since it met with FASB representatives in 2006. The board was sympathetic to NAREIT's request at that time, but it decided to work with the International Accounting Standards Board (IASB) to converge this particular accounting standard. After the boards agreed to the converged definition, this project was delayed because of the priority assigned to the major convergence projects (e.g. Leases, Revenue Recognition, Financial Instruments, Investment Companies/Entities, etc.).

NAREIT will establish a task force that will review the exposure draft, identify the impacts on our industry and develop a comment letter on the proposed accounting and reporting. Please contact Chris Drula if you would like to participate on this task force.

(Contact: Christopher Drula at Videos: CEO Spotlights's video team sat down with 35 REIT CEOs during REITWorld 2012 to get their insights into their companies and trends they are watching. New videos will be made available on regularly for the next several weeks. Below is a sample of the interviews currently available.

The industrial sector should continue to see strong demand and post positive results next year, said Phil Hawkins, CEO of DCT Industrial Trust (NYSE: DCT). "Not necessarily great, we're in sort of a slow-growth economy. There may be months or a quarter here and there that are better than that or maybe a little slower than that," he said. "But, for the most part, companies are making decisions when they are able to find solutions to their distribution needs that save money, improve efficiency and reduce time to market. That's what is driving our business."

Spencer Kirk, chairman and CEO of Extra Space Storage Inc. (NYSE: EXR), discussed the advantages of operating in the self-storage space where companies provide a need-based product that he said does well in both good and bad economies. Additionally, he acknowledged that there is not much new supply coming into the marketplace, which bodes well for established companies. "It is really self-storage nirvana right now and a great time to be in the business," he said.

Realty Income Corp.'s (NYSE: O) acquisition of American Realty Capital Trust is on track to be completed by the end of the year, said Tom Lewis, CEO of Realty Income. The transaction will be important to shareholders for several reasons, he said. "We'll add about 507 properties to the portfolio, and it will move us to about an $11.5 billion market cap. Most important is the quality of the cash flow. About 75 percent of the revenue that will come in from these properties is from investment-grade tenants."

The life sciences market continues to expand and Joel Marcus, chairman, president and CEO of Alexandria Real Estate Equities (NYSE: ARE), said his company is ready to meet the growing demand and also handle any upcoming market challenges. "We actually have more demand than we can handle on our balance sheet, and that's really the bad side," he said. "Our tenants have had a banner year this year, so the demand has been very brisk. Their demand is inelastic, so it really does not depend on the macro economy."

David Stockert, president and CEO of Post Properties (NYSE: PPS), discussed the interplay of the residential housing recovery and apartment markets. "People are tending today to delay the decision to buy a home a little longer for a variety of reasons that a lot of people know about. In terms of what we do with our company to be ready for different parts of the housing cycle, one is pay close attention to the balance sheet and make sure that we're strong in that way," he said. "Today we're still early in the new delivery cycle of housing, generally, so we've been early with the new development pipeline."

(Contact: Matt Bechard at Video: Calvin Schnure, NAREIT

In the December 2012 edition of "Fundamentally Speaking," Calvin Schnure, NAREIT vice president of research and industry information, discussed the outlook for commercial real estate and the broader economy in the coming year.

The economic outlook has been muddied by a number of factors recently, including concerns over the "fiscal cliff" and the impact of Superstorm Sandy on recent statistics. Schnure said the most recent employment report was in line with expectations. While the growth wasn't "exciting," the economy is showing slow and increasingly steady improvements. The concerns of a few months ago about the economy possibly heading toward a double-dip recession have been assuaged, according to Schnure.

Schnure also discussed the latest trends in the job market. He said there are signs of gradual healing. For example, private payrolls have risen by more than 5 million since January 2010. Additionally, the data suggest that more part-time jobs are being converted into full-time positions.

In terms of looking ahead, Schnure said the general focus has turned to avoiding the fiscal cliff. Assuming a deal is reached in Congress, it will involve some combination of higher taxes and lower spending, which will slow the economy, according to Schnure. Consequently, 2013 is not going to start on a strong note, he said. However, as the year progresses, the economy should regain momentum, Schnure said. He also downplayed concerns about more lasting damage from the fiscal cliff to the U.S. national economy.

In the commercial real estate industry, property owners are seeing a gradual improvement in demand for space. Furthermore, the economic downturn limited development and the addition of new supply to the existing building stock.

So while there's no doubt the recovery has been slow, it is making progress and there is every reason to expect it to return to the growth rates seen in the past, according to Schnure. And with new construction at a remarkably low level, that points toward rising occupancy, stronger rent growth and higher property prices, he said.

(Contact: Calvin Schnure at Videos: Industry Insights's video team sat down with nearly 70 industry leaders during REITWorld 2012 to get their insights into the current state of the REIT market, where things are heading in 2013 and what specific issues and trends they are watching. New videos will be made available on regularly for the next several weeks. Below is a sample of the interviews currently available.

Industry veteran Burland East, CEO of American Assets Investment Management, said investors should feel confident in REITs' future prospects. "We believe that most institutional and retail investors are best served by seeking an allocation in real estate through REITs, largely because most REITs have transparency, liquidity and governance," he said.

Investors are drawn to REITs because of their relative stability and reliable dividends, said Brian Jones, senior vice president and portfolio manager with Neuberger Berman. "REITs have performed very well over the past two to three years, and when we consider the prospects for REITs over the next few years, we believe commercial real estate fundamentals are likely to improve and that cash-flow growth within the REIT sector will remain strong," he said.

Sander Paul van Tongeren, senior sustainability specialist for global real estate and infrastructure with APG Asset Management, said programs such as the Global Real Estate Sustainability Benchmark and NAREIT's Leader in the Light are pushing the commercial real estate industry to adopt better sustainability practices. "I think it's very promising now that NAREIT fully endorses GRESB and that it is really integrated in the Leader in the Light program," he said. I think it sends a strong signal to the market that it is really about enhancing and protecting shareholder value. It's not about doing ‘green stuff' or being the most sustainable company. It's really to improve from an operational point of view and really optimize your buildings in a way that creates shareholder value."

(Contact: Matt Bechard at

Case Meets to Discuss Interest in FTSE NAREIT USGBC Green Property Indices

Brad Case, NAREIT's senior vice president of research and industry information, has had direct meetings with nine organizations regarding the new FTSE NAREIT USGBC Green Property indices. Those meetings include executives from Prudential, AEW, Morgan Stanley, JPMorgan and Alliance Bernstein. Case also has an upcoming meeting planned with State Street Global Advisors.

Case said the groups have shown an interest in learning how the FTSE NAREIT USGBC Green Property indices work to target investments in green properties. They are also interested in learning how independent academic research indicates that green-certified properties command higher rents, higher occupancy rates, and therefore better operating performance as well as reduced operating costs, Case said.

(Contact: Brad Case at

Register Today for REITWise

Join your legal, financial and accounting colleagues at REITWise 2013: NAREIT's Law, Accounting & Finance Conference March 20-22, 2013. Approximately 1,000 professionals attend each year to hear industry leaders speak at the variety of sessions, roundtables, meetings and events offered over the course of three days.

Topics covered include the latest legal, financial and accounting insights concerning capital markets, financial standards, SEC policies, tax updates and more. By attending, you can earn valuable CPE or CLE credits to meet your mandatory educational requirements.

Adding value to the event are the many networking and social opportunities to connect with peers and colleagues in a collaborative setting.

Registration for REITWise 2013 opened Dec. 17. Visit the REITWise Event Page to get all the details regarding the event as they become available.

(Contact: Afia Nyarko at

Happy Holidays from NAREIT

NewsBrief will not publish the next two weeks and will return on Monday, Jan. 7. From all of us at NAREIT, we hope you have a happy holiday season.

(Contact: Matt Bechard at


The Nareit Developments section on provides updates of Nareit's activities and key events impacting the REIT and commercial real estate industry. Nareit is the worldwide representative voice for REITs and publicly traded real estate companies with an interest in U.S. real estate and capital markets. Please see our Terms of Use.