June 18, 2012
Message from the President
REITWeek 2012: NAREIT's Investor Forum, held in New York last week, was perhaps the most successful REITWeek ever. Reflecting the growing interest in REIT investment, this year's event drew a record number of attendees – more than 2,200 – and a record number of REIT executive teams who told their stories to investors in individual company presentations.
The mood at this year's conference, among both REIT management teams and investors, was upbeat, and the rationale for that sentiment was encapsulated in CNBC "Mad Money" host Jim Cramer's remarks at the opening lunch general session. Cramer, who was introduced by NAREIT Chair and Federal Realty Investment Trust CEO Don Wood, told the group: "Your industry has done a remarkable job during this difficult time for the U.S. economy. This industry has gotten it completely right."
In the past four years, REITs have managed through the worst financial crisis and economic downturn since the Great Depression. They have maintained the confidence of their investors, which has led to equity offerings that have helped recapitalize our industry. Additionally, they have continued to deliver steady income and growth for their shareholders. Our industry has, indeed, "gotten it right."
That fact was recognized – and celebrated – by all of those who participated in REITWeek 2012. This issue of NewsBrief features stories, videos and photos from this year's conference. I hope you enjoy them.
Steven A. Wechsler
President and CEO
REITWeek 2012 Recap
REITWeek 2012: NAREIT's Investor Forum may always be remembered for the power outage at the New York Hilton, but even as the halls went dark, the event continued as many of the more than 2,200 REIT investors and executives in attendance carried on their meetings as planned. Of the total number of attendees, one half were investors.
When the power went out at 1:10 pm on Wednesday, Harvard University economist Kenneth Rogoff had just started his luncheon presentation. But "the show must go on," and Rogoff handled the unique situation flawlessly as he shared his insights into the global economic situation. The darkened ballroom served as a fitting backdrop for Rogoff's ominous outlook for the eurozone and the impact it could have on world markets. Rogoff, former chief economist for the International Monetary Fund and co-author of "This Time It's Different: Eight Centuries of Financial Folly," said the U.S. may not be headed back into a recession but it also isn't positioned to drive a global recovery.
The previous day, "Mad Money" host Jim Cramer brought his market insights and ebullient personality to REITWeek. Unlike other industries, Cramer said REITs have been able to take a number of steps to successfully manage through the financial crisis in "shareholder friendly ways," such as refinancing and issuing equity.
"Your industry has done a remarkable job during this difficult time for the U.S. economy," Cramer said. "This industry has gotten it completely right; the vast majority of you came through with flying colors. You've taken the property that was in weak hands and you put it in your own strong hands."
Cramer, who regularly has REIT executives on his program, said too many investors still have misperceptions about investing in REITs. "From the desire to measure FFO to the depreciation and tax status and what it means when a company converts to a REIT, it's important for me to educate viewers," he said.
At Tuesday night's NAREIT Board of Governors Dinner, Adm. Mike Mullen, USN (Ret.) and former chairman of the Joint Chiefs of Staff (2007-2011) shared his insights into the geopolitical landscape and detailed critical challenges the U.S. faces across the globe.
The focus of REITWeek, as always, was on the companies themselves. More than 100 companies gave investor presentations during the event. Discussion during the presentations touched on a wide range of issues, including value-add opportunities that are becoming more attractive, new leasing strategies, the ongoing sell-off of noncore assets to focus on core properties, and the emphasis on premium properties and locations. Many of the companies elected to webcast their presentations, which are accessible via REIT.com.
(Contact: Afia Nyarko at firstname.lastname@example.org)
NAREIT Rings NASDAQ Closing Bell
On Monday, June 11, Steven A. Wechsler, NAREIT's president and CEO, NAREIT staff and several key industry executives celebrated the commencement of REITWeek 2012: NAREIT's Investor Forum by ringing the NASDAQ closing bell.
(Contact: Abby McCarthy at email@example.com)
Investor CARE Winners Announced
NAREIT presented its 2012 Investor CARE Awards during a luncheon at REITWeek 2012. The awards, which honor excellence in communications and reporting to shareholders, are presented in three categories: Annual Report - Management Discussion and Analysis, Annual Report - Presentation and Design, and Website.
The gold award in the Management Discussion and Analysis category went to Vornado Realty Trust (NYSE: VNO). The silver award was awarded to Kimco Realty Corporation (NYSE: KIM), and two companies tied for the bronze award, Camden Property Trust (NYSE: CPT) and Health Care REIT, Inc. (NYSE: HCN).
"I sincerely believe the words in an annual report are as important as the numbers which go into it," said Joseph Macnow, executive vice president of Vornado Realty, upon accepting the award.
In the Presentation and Design category, Federal Realty Investment Trust (NYSE: FRT) received the gold award, followed by the silver award winner Westfield Group (NYSE: WDC) and AvalonBay Communities Inc. (NYSE: AVB), which received the bronze award.
"It was a very important year for Federal Realty. We celebrated 50 years of being a public company. We put our heart and soul into the annual report and were glad it was recognized," said Andrew Blocher, Federal Realty CFO and senior vice president.
The gold award in the Website category went to Brookfield Office Properties (NYSE: BPO). The silver award went to Ventas, Inc. (NYSE: VTR), while Federal Realty received the bronze award.
"Brookfield is proud to receive the Investor CARE Award from NAREIT for our website, which is one of the primary ways we communicate with our shareholders and other stakeholders," Melissa Coley, Brookfield's vice president for investor relations and communications, told REIT.com. "We strive to ensure that information about our company, properties and investment initiatives are comprehensive, accessible and cleanly designed."
The NAREIT CARE Awards are judged by an independent panel of REIT securities analysts and portfolio managers. This year's judges included: Paul Adornato, managing director and senior REIT analyst, BMO Capital Markets; David AuBuchon, director, Robert W. Baird & Co. Inc.; Ralph Block, CEO, Essential REIT Publishing Co.; The Chilton Capital Management REIT Team, Bruce Garrison, managing director, Matthew Werner, portfolio manager/analyst, Ben Atkins, analyst; Nathan Isbee, vice president and analyst, Stifel, Nicolaus & Co.; Lazard Asset Management LLC, Jay Leupp, managing director, Guatam Garg, vice president; The Tuckerman Group/SSgA, Amos Rogers III, managing director, Sophia Banar, portfolio manager, Tristan Cunha, portfolio manager; University of Denver - Franklin Business School of Real Estate and Construction Management; Glen Mueller, professor and his spring REIT class; Keven Lindemann, director - real estate group, SNL Financial LLC; RBC Capital Markets REIT Team; and Texas A&M University - Mays Business School's Cydney Donnell, executive professor, associate department head of finance and director of real estate programs, and Matt Ledlie, graduate assistant.
(Contact: Bonnie Gottlieb at firstname.lastname@example.org)
Commercial Real Estate Organizations Back U.S. REIT Act
NAREIT joined a coalition of commercial real estate organizations last week in expressing support for the introduction of H.R. 5746, the Update and Streamline REIT Act (U.S. REIT Act).
In a letter to the bill's co-sponsors, Reps. Patrick J. Tiberi (R-OH) and Richard E. Neal (D-MA), the groups praised the legislation's measures aimed at keeping REITs competitive in the evolving commercial real estate market.
"At little or no revenue cost, the U.S. REIT Act would make a number of narrowly targeted, but important, changes to the tax rules applicable to REITs to enable them to operate effectively, keep up with market changes, and remain consistent with the Congressional goal of more than five decades ago of making professionally managed, income producing real estate available to investors from all walks of life," the organizations said.
The National Alliance of Forest Owners (NAFO) also wrote to Neal and Tiberi in support of the bill.
(Contact: Tony Edwards at email@example.com)
REIT.com Videos: REITWeek 2012
REIT.com interviewed 70 industry professionals during REITWeek 2012 last week in New York. Below are highlights of some of those interviews. Be sure to visit REIT.com in the coming weeks as new videos will be added regularly.
With demand for multifamily rental space continuing to grown, Camden Property Trust (NYSE: CPT) has reinvigorated its development pipeline, according to Ric Campo, chairman and CEO. After shutting down its pipeline amid growing fears of a recession in 2007, Camden has invested $550 million in refurbishing approximately 3,000 legacy properties. The company currently has a pipeline backlog of approximately $500 million. While the sector's bull run may have left some observers speculating that the apartment sector is close to topping out, Campo said he thinks multifamily REITs still have room to run. "The fundamentals in our business right now are incredible," Campo said. "They're about as good as they get right now. The position from a supply-and-demand perspective is really good."
In the face of a challenging market, lodging REIT Strategic Hotels & Resorts (NYSE: BEE) is focusing its efforts on customer retention, according to president and CEO Laurence Geller. "We work very hard on our existing customer base," Geller said. "It's really important, because that's a base that you've already paid for."
Office REITs approached the market during the downturn in a number of ways, starting with the primary mantra of "blend, extend and don't spend," said John Guinee, managing director with Stifel Nicolaus. Guinee said it's important for office REITs to keep their space full without spending a lot of capital dollars to do so. Two other strategies are to sell vacancies and/or anticipate the office markets that are going to be in recovery mode and buy opportunistically.
While Equity Residential (NYSE: EQR) is disappointed it was unable to buy a stake in Archstone, the REIT has moved on to focus on other opportunities, said David Neithercut, president and CEO of the multifamily REIT. "Now, we just go back to what we've been doing the last 10 years, and that's selling assets in non-core markets and taking that capital and trying to reallocate it in the markets we're trying to focus on," he said.
After Home Properties, Inc. (NYSE: HME) launched a mobile site in March, renter traffic increased, said president and CEO Ed Pettinella. Customers who come through the site are qualified leads, with 30 percent coming in to see specific properties. "About 17 percent of our website folks are coming in through the mobile source. Last year it was 9 percent, so it's working."
Walt Rakowich, co-CEO of Prologis (NYSE: PLD), reflected on the one-year anniversary of the merger between AMB Property Corporation and the former ProLogis as his most significant accomplishment as he approaches the end of his tenure with the global industrial REIT. "Here we sit a year later, and I'm pleased to say that, really, the heavy lifting in the integration is over," he said. "The only thing that we have left in the integration is systems, and I think that we're making a lot of progress in that regard."
Broadstone Net Lease has benefited from the passage of the Jumpstart Our Business Startups (JOBS) Act passed in April, according to Amy Tait, the company's chairman and CEO. In the past five years, Broadstone has attracted more than 400 shareholders. However, under old regulatory standards, the company would have been forced to register with the Security and Exchange Commission (SEC) as a public company once it reached 500 shareholders. "We're ready to become a public company at some point, but not today," Tait said.
Investors seeking yield and safe dividends are driving REIT growth in 2012, said Sam Wald, portfolio manager with Fidelity Investments. "The dividend payout ratios are very low, meaning that dividends are very safe," he said. "Also, we feel that REIT dividends should grow from here as earnings recover through the cycle."
Despite continued concerns about the economy, the retail sector has posted respectable growth so far this year, said Don Wood, NAREIT chair and president and CEO of Federal Realty Investment Trust (NYSE: FRT). "I think consumer confidence has been stronger than I thought it would be. People are out there shopping," he says.
(Contact: Matt Bechard at firstname.lastname@example.org)
IRS Rules on REITs' Money Market Fund Holdings
On June 15, the IRS released Rev. Rul. 2012-17, essentially relying on a "no-action letter" issued by the Securities and Exchange Commission (SEC) to hold that a REIT's investment in a money market fund is an investment in "cash or cash items" for purposes of section 856(c)(4)(A).
The Tax Section of the American Bar Association submitted a letter to the IRS in 2009, requesting that the Treasury Department and the IRS issue guidance clarifying that a REIT's investment in the shares of a money market fund constitutes an investment in a cash item for purposes of section 856(c)(4)(A). NAREIT had requested similar guidance in subsequent submissions regarding the IRS' annual business plans.
(Contact: Dara Bernstein at email@example.com)
FASB and IASB Decouple Lease Accounting and Reporting for Investment Property
On June 13, NAREIT observed the joint meeting in London of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) focusing on lease accounting. NAREIT member companies operating as equity REITs have particular interest in the boards' revised approach to lease accounting.
The boards revised their approach to both lessee and lessor accounting to address constituent views that there are more than one type of lease and that they should be accounted for differently. While the boards reaffirmed that lessees should recognize lease obligations on their balance sheets, the boards revised the expense and income recognition pattern on the income statement for both lessees and lessors depending on the nature of the underlying asset. Based on the boards' tentative decisions, NAREIT believes that, for most property leases, lessors would recognize lease revenue on a straight-line basis and lessees would recognize rental expense on a straight-line basis. This income statement recognition for most property leases by both lessors and lessees would mirror current reporting. Most leases of assets other than property would result in a front-ended income (for lessors) and expense (for lessees) pattern. NAREIT has been advocating straight-line income statement recognition for lessors and lessees of real estate since the project began nearly six years ago.
(Contact: Christopher Drula at firstname.lastname@example.org)
NAREIT Welcomes Three New Members
NAREIT welcomes four new Corporate Members. American Residential Properties, Inc. is a recently formed, private, internally managed equity REIT that acquires single-family houses as investment properties for rental and provides short-term private residential mortgage financing. The properties are located primarily in the Southwestern U.S. with an initial emphasis on sub-markets in Phoenix, Las Vegas and the Inland Empire region of Southern California. Based in Scottsdale, American Residential's CEO and chairman is Steve Schmitz and its president is Laurie Hawkes.
Ares Commercial Real Estate Corporation (NYSE: ACRE) is a recently formed, publicly traded, externally managed commercial mortgage REIT that focuses on originating, investing in and managing middle market commercial real estate loans and other commercial real estate-related investments, with particular emphasis on origination combined with portfolio management. Based in Chicago, Ares Commercial’s chairman is Michael Arougheti, its CEO is John Bartling, Jr. and its president is Bruce Cohen.
Aviv REIT, Inc. is a private, internally managed equity REIT that issues public bonds. Aviv REIT is focused primarily on owning, acquiring and developing skilled-nursing facilities and other health care properties in the U.S. Aviv REIT's current portfolio includes 248 properties with long-term, triple-net leases to 36 high-quality local, regional and national operators in 27 states. Based in Chicago, Aviv REIT's chairman, CEO and president is Craig Bernfield and its COO and CFO is Steven Insoft.
(Contact: Bonnie Gottlieb at email@example.com)
REITs in the Community
On June 5, Rep. Pat Tiberi (R-OH), right, met with Dan Hurtwitz (second from right), chairman and CEO DDR Corp. (NYSE: DDR), and Glimcher Realty Trust (NYSE: GRT) Chairman & CEO Michael Glimcher (third from right). Tiberi was briefed on the current status of the REIT industry in Ohio. In addition, the REIT executives thanked Tiberi, a member of the House Ways and Means Committee, for introducing H.R. 5746, the Update and Streamline REIT Act (U.S. REIT Act). They discussed ongoing legislative efforts to reform the Foreign Investment in Real Property Tax Act and achieve sales and use tax parity for online and traditional retailers. Tiberi provided his insights on what issues he expects Congress to address throughout the remainder of this year. Also pictured with Tiberi are NAREIT President & CEO Steve Wechsler (far left) and DDR's Joseph Tichar (second from left).
(Contact: Kate Smith at firstname.lastname@example.org)
Save $200 on Introduction to the REIT Sector Training
REITs, banks, and advisory firms have been sending their professionals to SNL REIT School™ for more than a decade to get a comprehensive introduction to the REIT sector. The next session will be held June 26-27 at the Wyndham Chicago Hotel.
The agenda includes: sources of financial data necessary for evaluating a REIT's health and risk-return profile; REIT credit analysis; strategies for accessing and managing capital; evaluating acquisitions and dispositions; methodologies for valuing companies and structuring deals, and more. The event is suitable for both financial and non-financial professionals. NAREIT members save $200 by entering code NAREIT200.
(Contact: Jeff Henriksen at email@example.com)