March 24, 2014
Message from the President
NAREIT’s investor outreach program has been organized and developed to communicate the many benefits of REIT-based real estate investment to all parts of the investment community, including defined benefit pension funds, defined contribution plan sponsors and providers, investment consultants, financial advisors and others.
As part of our outreach to pension funds, NAREIT last week participated in the 2014 Spring Conference of the Pension Real Estate Association (PREA). The PREA event attracted approximately 800 attendees representing pension funds, as well as their investment consultants and real estate fund managers, who are focused on various forms of real estate investment, mostly through private markets.
The PREA conference provides an important opportunity for NAREIT and its corporate members to be part of the conversation, meeting and informing other conference attendees about the many benefits of including stock exchange-listed REITs and other publicly traded real estate companies in their portfolio allocations to real estate. During panel discussions, luncheon sessions and other conference events, the NAREIT outreach team had many opportunities to engage pension funds and their consultants, as well as to develop new relationships for future targeted outreach meetings.
NAREIT’s corporate members also were well represented at the conference. A panel discussion on public real estate featured David Henry, vice chairman, president and CEO of Kimco Realty Corp. (NYSE: KIM); Ed Walter, president and CEO of Host Hotels & Resorts, Inc. (NYSE: HST); David Neithercut, president and CEO of Equity Residential (NYSE: EQR); and Owen Thomas, CEO of Boston Properties (NYSE: BXP). The panel was moderated by Michael Brennan, executive director of the James A. Graaskamp Center for Real Estate at the University of Wisconsin. Brennan previously served as president and CEO of First Industrial Realty Trust (NYSE: FR).
REIT-based real estate investment among pension funds is widespread, but it’s still not particularly deep. Increasing REIT investment among these investors, which are traditionally and understandably steeped in private markets, requires us to discuss the REIT investment proposition with them whenever we can. That’s exactly what NAREIT and some of our members did last week, and we will continue to do so in the months ahead.
Steven A. Wechsler
President and CEO
NAREIT Testifies at Hawaii Hearing
At a hearing of the Hawaii Senate Committee on Ways and Means last week, NAREIT expressed its opposition to legislation that would eliminate the “dividends paid deduction” (DPD) for REITs from the state’s tax laws.
Tony Edwards, NAREIT’s executive vice president and general counsel, testified at the hearing. Edwards noted that the bill (H.B. 1726, H.D. 2) “would enact a serious policy change that would put Hawaii at odds with virtually all other states regarding the taxation of REIT income at the shareholder level only based on the state of shareholder residence.” Edwards also commented that the new rules would discourage REITs from operating in the state, and he pointed out that the proposal didn't account for the requirements placed on REITs that other real estate companies don't face.
Testimony from the Hawaii Department of Taxation voiced similar observations about creating a system of double taxation on income: “The department first notes that disallowing the dividend paid deduction would create a double taxation of income, which could cause taxpayers to lose the incentive to invest in Hawaii-based REITs. While it is true that ordinary ‘C’ corporations also impose a double layer of taxation on income earned by the ‘C’ corporation, such corporations do not have the limitations that are placed upon REITs, such that ‘C’ corporations have benefits which offset such double taxation that REITs do not.”
The committee has published testimony related to the hearing at its website.
(Contact: Tony Edwards at firstname.lastname@example.org)
FASB/IASB Stalemate on Leases Continues
On Mar. 18-19, NAREIT observed the joint meetings of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). In a highly anticipated joint meeting, the boards had hoped to reach decisions on both lessee and lessor accounting, among other items. While decisions were reached independently by each board on both lessee and lessor accounting, the boards were unable to reach a final converged decision on either aspect of the Leases project.
Equity REITs will welcome the boards’ decision to abandon the approach to lessor accounting from the 2013 Leases exposure draft. The boards appear to have heard the feedback that suggested that current lessor accounting is not broken. Nevertheless, the boards could not reach a converged decision regarding how to keep current lessor accounting intact.
The boards appear to agree that lessees should recognize lease liabilities on their balance sheets. However, the boards disagree on the subsequent accounting for the lease expense pattern in the lessee’s income statement. The IASB prefers a single lease model for all lessees, where the lease liability is treated in a manner similar to a financing. In an effort to reduce cost and complexity, the IASB agreed to carve out “small-ticket items” (i.e., high-volume, low-dollar-value leases). The FASB prefers a dual model similar to existing IFRS guidance that allows for both operating and capital leases. Given the FASB preference for a dual model, it did not believe that a carve-out for “small-ticket items” was necessary.
Given the impasse, FASB Chairman Russ Golden instructed the FASB staff to conduct more research on issues that divided the boards. The boards plan to reconvene in April or May to discuss whether the they can come to common ground.
(Contact: Christopher Drula at email@example.com)
NAREIT Joins Coalition in Expressing Reservations About FAA's Potential Height Requirements for Buildings Near Airports
NAREIT and a coalition of industry organizations wrote to the U.S. Department of Transportation last week regarding possible adjustments to the Federal Aviation Administration (FAA) building height requirements.
The organizations said they had been made aware of plans to include “one-engine inoperative” procedures into the criteria for building heights in close proximity to airports. The groups noted that such changes would alter “decades of agency precedent.”
The groups asked that the Transportation Department abide by “standard rulemaking procedures” before taking such action.
(Contact: Kirk Freeman at firstname.lastname@example.org)
Council Focuses on Educating DC Plans About Real Estate Investment
Last week, NAREIT traveled to Boston to attend the first 2014 quarterly meeting of the Defined Contribution Real Estate Council (DCREC). In its founding documents, DCREC is described as being formed “to promote the inclusion of investments in direct commercial real estate and real estate securities within defined contribution plans by furthering education about, advocacy for and best practices of such investments.”
This year, given the shared interests of DCREC and NAREIT, members of NAREIT’s Research & Industry Information and Investment Affairs & Investor Education teams continue to play an active role in the operations of the council. Late last year, Kurt Walten, NAREIT’s senior vice president of investment affairs and investor education, was elected as an officer of DCREC for 2014. He joined Ben Adams of investment manager Ten Capital as a co-treasurer of the council. Also elected were co-presidents Dave Skinner of Prudential Real Estate Investors and Laurie Tillinghast of UBS. In addition, Walten was re-elected to co-chair the council’s marketing and public relations committee along with Jennifer Perkins of Principal Real Estate Investors. NAREIT will also participate in 2014 as a member on DCREC’s research and content, finance and membership committees.
Since its founding last year, DCREC’s membership has grown dramatically. Founding members were Clarion Partners, Goldman Sachs, Principal Global Investors, Prudential Real Estate Investors, RREEF, State Street Global Advisors, Ten Capital, TIAA-CREF and UBS. The number of full members doubled in the last year as the following organizations joined: ASB Real Estate Investments, Benefit Trust Company, Bentall Kennedy, BlackRock, Cornerstone Real Estate Investors, Invesco, LaSalle Investment Management, MetLife Real Estate Investors and USAA. Other members of the investment management community are expected to participate.
DCREC activities of particular importance to NAREIT include:
Supporting and encouraging dialogue and cooperation among the leaders of the defined contribution plan community and others committed to the best interests of American employees who are passionate about improving defined contribution plan investment structures and design through real estate investment allocations;
Encouraging and sponsoring research, publishing analysis and insights, and hosting events that support the advancement of improved defined contribution plan designs that include real estate and real estate allocations;
Identifying issues and removing barriers for plan sponsors so they may pursue improved real estate allocations within defined contribution institutional investment structures; and
Educating policymakers and regulators about the importance of including real estate investment opportunities in institutional defined contribution plan designs as a way to improve retirement security.
(Contact: Kurt Walten
REIT.com CEO Spotlight Video: Rick Matros, Sabra Health Care REIT
Rick Matros, chairman and CEO of Sabra Health Care REIT (NASDAQ: SBRA), joined REIT.com for a video interview at the St. Regis Hotel in Washington, D.C. during NAREIT’s 2014 Washington Leadership Forum.
Sabra has recently expanded into Nebraska and Texas, and Matros was asked if further investment could be expected.
Matros explained that Sabra has indicated that it expects to invest in the range of $350 million to $450 million this year, making it “our best year up to this point.”
The health care REIT has no geographic limitations, said Matros, adding that its focus will remain on “senior housing, skilled nursing to a lesser extent and acute hospital opportunities that make sense for us.”
(Contact: Matt Bechard at email@example.com)
NAREIT Participates in PREA Conference
Last week NAREIT participated in the 2014 Spring Conference of the Pension Real Estate Association (PREA), which currently lists over 700 corporate members across the United States, Canada, Europe and Asia focused primarily on institutional real estate investment through private markets.
The conference attracted approximately 800 attendees representing pension funds, as well as their investment consultants and real estate fund managers. Panel sessions at the event focused on a number of topics, including the effects of Federal Reserve tapering on the performance of real estate investment, credit market conditions, changing views on appropriate real estate allocations in institutional investment portfolios and real estate investment opportunities in defined contribution plans.
The PREA conference also scheduled meetings for a number of Affinity Groups, and NAREIT participated in a meeting of the Research Affinity Group, at which Professor David Geltner of the MIT Center for Real Estate presented results of recent research into the characteristics of real estate depreciation.
The PREA conference is one of the major institutional real estate investment conferences of the year, and it provides an important opportunity for NAREIT, its corporate members as well as REIT-based real estate investment managers to meet and inform other conference attendees about the many benefits of including stock exchange-listed REITs and other publicly traded real estate companies in their portfolio allocations to real estate.
(Contact: Mike Grupe at firstname.lastname@example.org)
FASB Suspends Efforts to Converge Financial Instruments - Classification and Measurement Guidance for Loans and Debt Securities
On Mar. 12, the Financial Accounting Standards Board (FASB) met in Norwalk, Conn., to discuss whether targeted improvements should be made to existing U.S. Generally Accepted Accounting Principles (GAAP) for the classification and measurement of loans and debt securities, which is of interest to mortgage REITs. The board decided to retain current U.S. GAAP with respect to loans and debt securities and incorporate a requirement that equity investments be measured at fair value with changes in value recognized in net income.
As a result, loans would be classified as held for investment or held for sale. Loans classified as held for investment would be measured at amortized costs, while loans classified as held for sale would be measured at lower of cost or fair value. Similarly, debt securities would continue to be classified as trading, available for sale or held to maturity. Debt securities classified as trading would be measured at fair value with changes in value recognized in net income. Debt securities classified as available for sale would be measured at fair value with changes in value recognized in other comprehensive income. Finally, debt securities classified as held to maturity would be measured at amortized cost.
For more information on this and new developments from the FASB regarding the credit losses model and repurchase agreements, see the SFO Alert issued last week by NAREIT.
(Contact: Chris Drula at email@example.com)
NAREIT Adds Three to Board Associate Program
NAREIT's Board Associate Program consists of leading senior real estate professionals who represent firms that service and/or support the REIT and publicly traded real estate industry through active participation and patronage of NAREIT programs and activities conducted throughout the course of the year. NAREIT is pleased to announce the addition of three companies to the program.
Chatham Financial is an independent advisory and technology firm specializing in interest rate and FX hedging, hedge accounting, debt and derivative valuation, debt management, defeasance and capital advisory. Founded in 1991, Chatham serves more than 1,000 companies annually, with its practitioners bringing deep debt and derivatives expertise and complex regulatory knowledge to its clients. Mike Bontrager is the founder and CEO of Chatham Financial and the Board Associate representative for the firm.
Green Street Advisors provides REIT research, real estate analytics, trading and advisory services to real estate investors and other industry participants. With a staff of more than 30 dedicated research professionals and a 29-year history, Green Street’s research encompasses more than 100 companies and all of the major property sectors and markets throughout North America and Europe. Headquartered in Newport Beach, Calif., and with offices in Dallas and London, Green Street is independent and employee-owned. Mike Kirby is chairman and director of research, and Craig Leupold is the company’s president. Kirby is the Board Associate representative for the firm.
Morrison & Foerster LLP is a full-service, international law firm with a REIT practice that is a collaborative, integrated, multi-office practice involving corporate securities, finance, investment management, real estate, tax, and other attorneys throughout the domestic and international offices of the firm. The firm advises REITs, REIT sponsors, contributors, investors, investment advisors, underwriters, and institutional lenders on all aspects of their business and financing activities. David Slotkin, partner at the firm, is the Board Associate representative.
(Contact: Chris Flood at firstname.lastname@example.org)
NAREIT Welcomes New Corporate Member
NAREIT is pleased to welcome Gladstone Land Corp. (NASDAQ: LAND) as its newest Corporate Member. Gladstone Land Corp. is an externally advised Equity REIT that is the sister REIT of NAREIT Corporate Member Gladstone Commercial Corporation (NASDAQ: GOOD). Gladstone Land invests in farmland and farm-related properties located in major agricultural markets throughout the U.S. that are net leased to independent or corporate farmers. David Gladstone is the chairman and CEO of the McLean, Va.-based company.
(Contact: Bonnie Gottlieb at email@example.com)
REIT.com Video: Ari Frankel, Deutsche Asset & Wealth Management
Ari Frankel, head of ESG strategy, real estate, at Deutsche Asset & Wealth Management, joined REIT.com for a video interview at NAREIT’s 2014 Leader in the Light Working Forum in San Francisco.
Frankel was asked why gathering sustainability data has become a key project for the REIT industry. He responded that 100 percent of studies that have looked at the connection between sustainability performance and financial performance have demonstrated a positive correlation, which isn’t the case in other asset classes.
“Investors are onto that,” he said of the correlation between sustainability and financial performance, “and they understand also that they need actionable frameworks and metrics that enable them to assess what should be done.”
He pointed out that, particularly in the United States, “investors are really looking to their managers to deliver those frameworks and strategies to them.”
Frankel also noted that investors are particularly interested in sustainability data concerning how to both preserve and create real estate value.
(Contact: Matt Bechard at firstname.lastname@example.org)
Final Week to Register for REITWise
REITWise 2014®: NAREIT's Law, Accounting & Finance Conference® will be held next week in Boca Raton, Fla. More than 38 sessions, events and networking opportunities will provide attendees with information on the latest REIT law, accounting, tax and finance practices. Join approximately 1,000 colleagues to receive the most relevant information on legislation, guidelines, recommendations and opinions surrounding law, finance, tax and accounting for REITs.
Attendees earn up to 19.5 CPE or 17.75 CLE credits to help meet their mandatory educational requirements.
(Contact: Katelyn Rowland at email@example.com)