December 9, 2013
Message from the President
As the stories in this issue of NewsBrief illustrate, NAREIT undertook a very active Investor Outreach program this year. We disseminated the REIT-based real estate investment story to all segments of the investment community, including providers of defined benefit and defined contribution plans, creators of fund products, investment managers and consultants, and financial advisors.
By the conclusion of this year, we will have made the case for REITs through nearly 400 direct meetings and conference events. Additionally, we partnered with other organizations as diverse as the Defined Contribution Institutional Investment Association, the National Association of State Treasurers and the National Conference on Public Employee Retirement Systems to communicate the benefits of REIT investment. In the year ahead, we are committed to intensify these activities.
Research on the investment benefits of REITs, performed by NAREIT’s own economists and by outside consultants such as Wilshire Associates, also is a fundamental part of our Investor Outreach program. Next year, we will add two new research reports to our body of outreach resources.
The first, geared to the defined benefit marketplace, investigates how major pension plans in the United States have implemented their real estate allocations in the past 14 years using both direct real estate investments and listed REITs, as well as how both investments have performed over time to meet obligations to plan participants.
The second study provides additional insight into the effectiveness of listed REITs as an income generator and will provide important content for our 2014 outreach to financial advisors.
Fact-based research initiatives such as these help encourage greater analytical and critical thinking about REITs in the investment community and, therefore, help our Investor Outreach team make our industry’s case, as well as the case for real estate investment more generally, in an intelligent and effective manner.
Because REITs provide the benefits of real estate investment – current income, capital appreciation over time and investment diversification – the story we bring to the investment community really begins with the benefits of investing in real estate and then moves on to the story of why real estate investment through REITs is potentially beneficial to investors of all types.
That is the essence of our outreach to the investment community, and it will continue to be the foundation of our Investor Outreach program in 2014 and beyond.
Steven A. Wechsler
President and CEO
REITs to Qualify as “Institutional Investors” in U.K.
The U.K. government last week announced that it will legislate to include REITs within the country’s definition of “institutional investor.” The measure should provide U.K. REITs with greater access to capital by expanding their financing opportunities.
NAREIT has advocated for the move ever since the U.K. government announced in March that it would be soliciting input on the measure from stakeholders. In June, NAREIT submitted comments in support of the proposal.
The announcement was made in the Autumn Statement delivered by U.K. Chancellor of the Exchequer George Osborne. Detailed provisions will be provided this week for technical comment.
(Contact: Dara Bernstein at email@example.com)
Investor Outreach Team Active in November
In November, NAREIT's Investor Outreach team held direct meetings with a diverse group of 22 investment organizations controlling more than $6 trillion in assets in the institutional investment market. The 22 meetings were held with organizations across all targeted investment cohorts, including: one with a prominent domestic pension plan representing more than $102 billion in assets; two with investment consultants with assets under advisement of $152 billion; and nine with investment managers sponsoring global and domestic products for the institutional and retail investor markets and a combined $6 trillion in assets under management. Another 10 meetings were held with other organizations and associations active in investment management and retirement industry.
It is notable that our outreach meetings with investment managers provide significant opportunities to influence REIT allocations within the broad asset allocation products sold through multiple channels, including through institutional defined contribution (DC) plan provider platforms as well as through firms whose products are distributed through financial advisor networks. Seven of the meetings we had with investment managers during November were with managers active in both the $5.4 trillion DC and $5.4 trillion IRA markets, and our meetings and ongoing relationships with these leading firms provide us with the opportunity to influence two-thirds of the entire $16.6 trillion retirement market.
In addition to the direct meetings noted above, NAREIT is active on the financial intermediary and retail investor-focused conference circuit, participating in nine such events in 2013. In December, Abby McCarthy, vice president of investment affairs and investor education, will participate in the Investment Management Consultants Association’s 2013 Winter Institute. These conferences provide NAREIT an opportunity to inform and educate financial advisor and RIA attendees on the benefits of REIT investing while also providing the opportunity to develop stronger relationships with many of the participating investment firms with which NAREIT maintains a regular dialogue through its direct meeting program.
Through the end of November, NAREIT has conducted 359 meetings with many of the largest and most influential investment organizations within the institutional investment marketplace. Collectively, these entities represent more than $36 trillion in assets under management or advisement.
NAREIT has also been active on the institutional investment conference circuit during 2013, attending 39 events, participating as a speaker at eight, board member at four and sponsor at two. To provide perspective, during the same time period in 2012, NAREIT participated in 37 such conferences.
(Contact: Kurt Walten at firstname.lastname@example.org)
Sustainability Working Forum One Month Away
NAREIT Corporate Members should register now for NAREIT's 2014 Leader in the Light Working Forum, the continuation of a highly successful annual series of focused exchanges on energy efficiency and sustainability. The 2014 Working Forum is being facilitated by consulting firm Real Foundations, a NAREIT Board Associate member, and hosted by NAREIT Corporate Member Prologis (NYSE: PLD) at the company's office at Pier 1 in San Francisco on Jan. 8 and Jan. 9.
The 2014 Leader in the Light Working Forum has moved to an earlier date in the calendar year to take place well in advance of the submission period for the 2014 GRESB Survey/Leader in the Light Awards (April 1 through June 30).
Attendees of the 2014 Leader in the Light Working Forum will be presented the opportunity to understand the investor community's perspective on the growing importance of sustainability in determining capital allocations. Additionally, the Working Forum will serve as a venue for corporate members to expand their understanding of the components of the Global Real Estate Sustainability Benchmark (GRESB) Survey, including an informative discussion on GRESB's scoring methodology, and an update from PricewaterhouseCoopers on external assurance/data verification. Attendees will also receive an update on the status of ongoing discussions between NAREIT and the U.S. Green Building Council; together with an update from the Institute for Market Transformation on changes in the regulatory and compliance landscape.
Participants in the 2014 Leader in the Light Working Forum include:
Sander Paul van Tongeren, Senior Sustainability Specialist Global Real Estate, APG Asset Management
Nils Kok, Executive Director, GRESB
Cliff Majersik, Executive Director, Institute for Market Transformation
Cope Willis, Director, PricewaterhouseCoopers
(Contact: Sheldon Groner
NAREIT Participates in Defined Contribution Institutional Investment Association Annual Board Meeting
Last week, Kurt Walten, NAREIT senior vice president for investment affairs and investor education, and Scott Brooks, a managing director and head of defined contribution at SEI, presented a research project update to the board membership of the Defined Contribution Institutional Investment Association (DCIIA).
The research will culminate in a white paper that will, among other things, advocate for real estate as a fundamental asset class within DC plans and for the inclusion of REITs and listed real estate equities in addition to private real estate within DC investment platforms.
DCIIA was organized in 2010 for the purpose of seeking to incorporate best practices into the $5.4 trillion DC retirement market. Since it was established, DCIIA has steadily built an impressive membership roster, including a vast majority of the most visible thought leaders in the DC industry. As evidence of this, DCIIA began with 42 founding members and is ending 2013 with 140 members.
In addition to NAREIT, founding members of DCIIA include some of the largest investment consultants, such as Callan Associates, Hewitt EnnisKnupp, Ibbotson Associates, Mercer, Morningstar and TowersWatson. DCIIA members also include major investment managers, such as AllianceBernstein, BlackRock, Fidelity Investments, Goldman Sachs, J.P. Morgan, PIMCO, Russell Investments, T. Rowe Price, UBS, Vanguard, Wellington Management and Wells Fargo. NAREIT maintains an ongoing dialogue with all of these organizations through its direct meetings program. Plan sponsors of the largest and most influential DC plans also participate.
As a board member, NAREIT serves on DCIIA's public policy and investment policy and design committees. Advocating for the automation of key aspects of DC plan participation is of particular importance to NAREIT as well as promoting full opportunity for the inclusion of all major asset classes and investment product formats within DC plans.
(Contact: Kurt Walten at email@example.com)
REIT.com Videos: CEO Spotlights
A host of REIT CEOs sat down for video interviews with REIT.com at REITWorld 2013: NAREIT's Annual Convention for All Things REIT in San Francisco. Below is a sample of recent interviews posted online.
Jon Bortz, chairman and CEO of Pebblebrook Hotel Trust (NYSE: PEB), explained the investments the company is making in enhancing many of its assets.
“We’ve found that with our renovations, design sells. We’re very focused on creating an experience for our customers through these renovations that’s different from what you’d get in a typical hotel,” Bortz said.
Joe Coradino, CEO of Pennsylvania Real Estate Investment Trust (NYSE: PEI), talked about the different classes of tenants that his company is looking to add to its portfolio.
“We’re really looking to enhance the shopping experience,” he said. “We think restaurants and entertainment are key uses. Then, on an asset-by-asset basis, we may introduce non-retail uses that tend to round out the property. That could be an ambulatory care facility, a junior college in one instance – something that really makes the asset more part of the community.”
Michael Glimcher, chairman and CEO of Glimcher Realty Trust, talked about the company’s tenant mix and how it likes to experiment with interesting new retail concepts.
“Most of them work out, but some of them don’t,” he said. “But if you bet on the right people and people you believe in, they usually perform if you put them in the right place.”
Phil Hawkins, CEO of DCT Industrial Trust (NYSE: DCT), discussed where he sees the best opportunities in the industrial real estate market in the United States.
“Certainly right now development is an exciting opportunity for us,” he said. “We spent a lot of time building the development capability, and acquiring land at attractive prices that allow us to develop at really attractive risk-adjusted returns.”
Ted Rollins, chairman and CEO of Campus Crest Communities, Inc. (NYSE: CCG), talked about the student housing company’s recent expansion into Canada.
“We followed student trends in Canada for a while,” Rollins said. “When we looked at the Montreal market as our first entry point into Canada, it was very compelling, given the number of students living within a very close radius. It was an unserved market. We saw a trend toward a purpose-built product in that market and a need for it and a large amount of international students as well.”
Amy Tait, chairman and CEO of Broadstone Real Estate, discussed the impact of the federal Jobs Act legislation and general solicitation rules on Broadstone.
“In April of 2012 when the Jobs Act was approved, it talked about approvals for what they call general solicitation,” she said. “The SEC missed all of their deadlines and took their time defining all the actual rules to go around this. During the summer all of the sudden, they came out with new regulations with 60 days’ notice that became effective September 23rd. I’m excited to say that we were not only the first real estate company, we were the first company in the country of all types to file as what’s now called a 506c Registration.”
(Contact: Matt Bechard at firstname.lastname@example.org)
Outreach to State Treasurers
In conjunction with efforts to increase the level of investment in REITs by public sector pension plans, NAREIT has expanded its outreach program to include membership and participation in a number of national and state associations representing the interests of public sector pension and retirement plans.
As part of this initiative, NAREIT has been a member of the National Association of State Treasurers (NAST) since 2010. This week, Meredith Despins, NAREIT vice president of investment affairs and investor education, participated in NAST’s “Issues Conference on Public Fund Management” in New York. This conference provides an opportunity for NAREIT’s investor outreach team to engage directly with the Treasurers and their investment staffs - an important audience for NAREIT’s outreach initiatives.
NAST’s members include all state treasurers or state finance officials with comparable responsibilities from the United States, its commonwealths, territories and the District of Columbia. More than 30 state treasurers serve as trustees and board members of the public pension systems within their states; in many cases, serving on multiple pension boards not only at the state level but also the county and municipal levels. The total pension assets of the 25 largest state funds are $2.3 trillion, representing nearly 40 percent of the entire $5.8 trillion defined benefit market. Further, data from the Standard & Poor's Money Market Directory indicates that 23 of these 25 largest public pension plan sponsors in the U.S. invest in REITs.
(Contact: Meredith Despins at email@example.com)
REIT.com Videos: REITWorld 2013 Insights
Dozens of REIT industry professionals sat down for video interviews with REIT.com at REITWorld 2013: NAREIT's Annual Convention for All Things REIT in San Francisco. Below is a sample of recent interviews posted online.
Marty Cicco, a senior managing director with Evercore Partners, provided his analysis of the potential for mergers and acquisition in the REIT market in 2014.
"There has certainly been a lot in the net lease sector," he said. "M&A is relatively cyclical. I'd make two or three observations. One, particularly on the net lease side, [the activity] was really the outgrowth of a number of [public, non-listed] REITs out there that faced a point in their life span where they were forced to list. As opposed to listing, merger becomes an opportunity for those companies. You have a lot of assets there that need liquidity and, as part of their charter, had to get liquidity. I think that's what spurred the M&A market."
After exhibiting an “incredible” pace of recovery since 2009, growth in the commercial real estate sector will likely slow during the coming year, according to Bob O’Brien, U.S. leader for real estate services at Deloitte & Touche LLP.
“If you take a look at capital markets activity, (the) improvement in fundamentals, transaction activity, all of it has been very strong over the past few years. We think the industry has really hit its stride, so although we’re still predicting improvement in 2014, we just think that the pace of improvement slows down a bit,” O’Brien said.
Tony Paolone, an executive director with J.P. Morgan Securities, talked about which sectors he expects to outperform in 2014.
“One area that we’re thinking longer and harder about right now is in the office sector, which has been very slow to see its fundamentals improve through this cycle,” he said. “If we look out and believe that the economy is going to continue to improve and we move further and later into the cycle, perhaps you might see a little acceleration in earnings growth out of some of the office names, and perhaps that will start to attract some capital as well. So, we’re watching the office sector pretty closely going into next year.”
Jim Sullivan, managing director of REIT research for Green Street Advisors, talked about why share repurchases make more sense for REITs than public companies in other industries.
“There are a lot of studies that show that share repurchases have a mixed reputation or a mixed result in corporate America,” he said. “The reason for that is that many companies use share repurchases as an earnings management tool. They’re not buying their stock back because it’s cheap, they’re buying it back because: number one, they have the cash to do it; and number two, it helps their earnings per share. The problem with that strategy is most companies only buy back stock when they’re doing well, they have the cash to buy back stock and typically their stock is trading at a premium at that point. REIT management teams have the opportunity to look at net asset value, look at where their share price is trading and to buy stock back only when it’s cheap, not for the purpose of managing their earnings.”
David Toti, a senior managing director with Cantor Fitzgerald, talked about sectors where he is taking a bullish view.
“We’ve been consistently overweight in the short-lease sectors - apartments, self-storage, pockets of health care - anything where there’s an ability to pass on any margin pressure to the consumer in the context of pricing power,” he said. “One of the big concerns right now in the apartment sector is that pricing power is eroding, but we still view it as substantial enough to withstand a cost of capital increase, whether that’s on the operating expense side or the capital side.”
(Contact: Matt Bechard at firstname.lastname@example.org)
NAREIT Welcomes Two New Corporate Members
NAREIT is pleased to welcome two new Corporate Members. Cole Corporate Income Trust, Inc. (CCIT) is an externally advised, public non-listed equity REIT whose external advisor is indirectly owned by Cole Credit Property Trust, Inc. Cole Corporate Income Trust invests in “necessity corporate” properties, defined as essential to the day-to-day operations of a corporation's business. These properties include distribution facilities, warehouses, manufacturing plants, and corporate or regional headquarters. CCIT is based in Phoenix, along with its sister REITs, and Chris Cole is its president and CEO.
Preferred Apartment Communities (AMEX: APTS) is an externally advised, equity REIT that acquires and operates multifamily properties in select targeted markets. Based in Atlanta, Preferred Apartment Communities’ chairman and CEO is John Williams and Leonard Silverstein is its president and COO.
(Contact: Bonnie Gottlieb at email@example.com)
REITs in the Community
Nov. 22, 2013: Glimcher Realty Trust (NYSE: GRT) Chairman and CEO of Michael Glimcher, left, visited with Mark Bell, chief of staff for Rep. Pat Tiberi (R-OH), at company headquarters in Columbus, Ohio. The two discussed a number of important issues including tax reform, FIRPTA reform and the Marketplace Fairness Act. Bell was also updated on Glimcher’s business activities in Ohio and across the country.
(Contact: Kate Smith at firstname.lastname@example.org)