NewsBrief (November 18, 2013)

Message from the President

As the stories in this issue of NewsBrief report, more than 1,400 members of the REIT community gathered in San Francisco last week to participate in REITWorld 2013: NAREIT’s Annual Convention for All Things REIT.

This year’s convention took place on the 20th anniversary of the REIT industry’s “big-bang” year of 1993, which many regard as the opening year of the Modern REIT Era. In 1993, in the midst of a credit crisis precipitated by a real estate market collapse, 45 privately held property companies took a huge step in a new direction by going public and by recapitalizing their balance sheets.

The REIT IPOs of 1993 were followed by 43 in 1994 and 59 through the remainder of the decade. This exceptional period of growth provided the REIT industry with the scale required to move REITs into the investment mainstream and, therefore, make the REIT approach to real estate investment available to all types of investors.

Of the companies that became listed REITs in the transformational year of 1993, 19 are still in the FTSE NAREIT All REITs Index and were recognized at REITWorld 2013. They are listed below. We congratulate them on their pioneering contributions to our industry and their 20th anniversaries.

Also, at last week’s event Equity Group Investments Chairman Sam Zell reprised his memorable speech from NAREIT’s 1993 annual convention in New Orleans. At the conclusion of Sam's remarks, I thanked him on behalf of the entire REIT community for his vision, thought leadership and many contributions over the last 20 years. It's a sentiment that I know everyone in the industry shares.






Steven A. Wechsler
President and CEO

NAREIT Announces 2014 Leadership

From left to right: Treasurer Edward Fritsch of Highwoods Properties; Second Vice Chair David Henry of Kimco Realty Corporation; NAREIT President & CEO Steven Wechsler; Chair Ronald Havner, Jr. of Public Storage; First Vice Chair David Neithercut of Equity Residential

NAREIT announced last week the election of its 2014 leadership team, as well as the members of its Executive Board, Board of Governors, and Audit and Investment Committee.

Ronald Havner Jr., chairman and CEO of Public Storage (NYSE: PSA), was elected NAREIT chair for 2014, succeeding NAREIT’s 2013 chair, W. Edward Walter, president and CEO of Host Hotels & Resorts (NYSE: HST).

“I am honored to serve as NAREIT’s chair for 2014,” Havner said. “I am looking forward to building on the strong foundation established by Ed Walter and all of the prior NAREIT chairs who have served the REIT industry so well.”

Other NAREIT officers for 2014 are First Vice Chair David Neithercut, president and CEO of Equity Residential (NYSE: EQR); Second Vice Chair David Henry, vice chairman, president and CEO of Kimco Realty Corporation (NYSE: KIM); and Treasurer Edward Fritsch, president and CEO of Highwoods Properties, Inc. (NYSE: HIW). All of NAREIT’s officers are also members of its Executive Board.

Members of NAREIT’s 2014 Executive Board are: Thomas Baltimore, president and CEO of RLJ Lodging Trust (NYSE: RLJ); Richard Campo, chairman and CEO, Camden Property Trust (NYSE: CPT); George Chapman, chairman and CEO, Health Care REIT, Inc. (NYSE: HCN); Wellington Denahan, chairman and CEO, Annaly Capital Management, Inc. (NYSE: NLY); Rick Holley, CEO, Plum Creek Timber Company, Inc. (NYSE: PCL); Daniel Hurwitz, CEO, DDR Corp.(NYSE:DDR); Timothy Naughton, chairman and CEO, AvalonBay Communities, Inc. (NYSE: AVB); Dennis Oklak, chairman and CEO, Duke Realty Corporation (NYSE: DRE); Robert Taubman, chairman, president and CEO, Taubman Centers, Inc. (NYSE: TCO); W. Edward Walter, president and CEO, Host Hotels & Resorts, Inc. (NYSE: HST); and Donald Wood, president and CEO, Federal Realty Investment Trust (NYSE: FRT).

Members of NAREIT’s 2014 Audit and Investment Committee are: Committee Chair Sandeep Mathrani, CEO, General Growth Properties (NYSE: GGP); Michael P. Glimcher, Chairman and CEO, Glimcher Realty Trust (NYSE: GRT); and Edward J. Fritsch, President and CEO, Highwoods Properties, Inc., serving in an ex-officio capacity as NAREIT’s 2014 Treasurer.

A complete list of NAREIT’s 2014 Board of Governors is available on REIT.com.

(Contact: Dominique Wilburn at dwilburn@nareit.com)

 

REITWorld 2013 Recap

San Francisco played host to more than 1,400 industry professionals last week during REITWorld 2013: NAREIT’s Annual Convention for All Things REIT. The annual event was once again a success as 168 corporate member companies interacted with investors over three days at the San Francisco Marriott Marquis.

The mood at the event was cautiously optimistic as strong industry fundamentals outweighed lingering concerns over broader economic and government-related challenges.

In addition to focusing on the current and future prospects for the REIT market, NAREIT took a moment to acknowledge the important contributions of the 19 companies that went public in 1993 and helped solidify the start of the Modern REIT Era: Acadia Realty Trust, Associated Estates Realty Corp., AvalonBay Communities, Camden Property Trust, CBL & Associates Properties, DDR, Equity Lifestyle Properties, Equity Residential, General Growth Properties, Healthcare Realty Trust, Lexington Realty Trust, PMC Commercial Trust, Post Properties, Regency Centers, Saul Centers, Simon Property Group, Sun Communities, Tanger Factory Outlet Centers and Vornado Realty Trust.

Kenneth Rosen

Kenneth Rosen, chairman of Rosen Consulting Group, kicked off the event with his economic outlook. Rosen said the commercial real estate sector is in the "sweet spot" of the economic cycle, with supply and demand fundamentals looking "very good." Rosen cited low building supply nationwide in a number of sectors, including retail and warehouse, as a positive sign for the industry. The warehouse sector, for example, is at a 50-year low in new construction starts, according to Rosen.


Mike Kirby and Ronald Havner, Jr.

Looking at how far the industry has come since the historic wave of public offerings in 1993, NAREIT Chair Ronald Havner, Jr. moderated a panel focused on what is ahead for REITs. Joining Havner on the panel were: Richard Campo, chairman and CEO, Camden Property Trust (NYSE: CPT); Mike Kirby, chairman and director-Research, Green Street Advisors, Inc.; Robert Steers, co-chairman and co-CEO, Cohen & Steers Capital Management; and Martin "Hap" Stein, Jr., chairman and CEO, Regency Centers Corporation (NYSE: REG).

Kirby said the REIT story "has always looked good to us, and today it looks outstanding." Steers added that prospective growth is "significant," noting that REIT stocks are finding their way into 401(k) retirement plans in a "meaningful way" by means of target date investment funds. Furthermore, Steers characterized global capital flows into U.S. REITs as "massive."


Barry Vinocur, Timothy Pire, Mark Streeter and Seth Weintrob

Participants in a panel focused on the capital markets predicted that liquidity would continue to be available to REITs into 2014, but they noted that higher interest rates and tapering of Federal Reserve bond purchases will create lingering uncertainty for investors.

The panel consisted of: Timothy Pire, managing director, Heitman Securities LLC; Mark Streeter, managing director, J.P. Morgan; Seth Weintrob, managing director, Morgan Stanley; and Raymond Williamson, managing director, Eastdil Secured, LLC. The panel was moderated by Barry Vinocur, editor of REIT Zone Publications, LLC.


Leon Panetta

During NAREIT’s Board of Governors dinner, Leon Panetta, former secretary of defense and director of the CIA, entertained and educated the audience with stories about his career in Washington and provided an insider’s view into the killing of Osama Bin Laden.


Jon Bortz, Kenneth Cruse and Jay Shah

The second day of REITWorld began with a panel of hotel REIT CEOs discussing prospects for the sector. Moderated by William Crow, managing director with Raymond James and Associates, the panelists agreed that the hotel sector is benefitting from a combination of low supply, healthy demand, and strong corporate balance sheets. Panelists included: Jon Bortz, chairman and CEO of Pebblebrook Hotel Trust (NYSE: PEB); Kenneth Cruse, CEO, Sunstone Hotel Investors, Inc. (NYSE: SHO); Colin Reed, chairman and CEO, Ryman Hospitality Properties, Inc. (NYSE: RHP); and Jay Shah, CEO, Hersha Hospitality Trust (NYSE: HT).


Craig Macnab, Nicholas Schorsch and Amy Tait

With a spotlight on the sector following some high-profile acquisitions, a panel of net-lease REIT CEOs told a REITWorld 2013 forum that the sector is likely to continue on a path of solid growth, fueled in part by an inflow of assets from the non-traded segment of the market. Moderated by Todd Stender of Wells Fargo Securities, the panel featured: Trevor Bond, president and CEO, W. P. Carey Inc. (NYSE: WPC); Craig Macnab, chairman and CEO, National Retail Properties, Inc. (NYSE: NNN); Nicholas Schorsch, CEO, American Realty Capital Properties, Inc. (NASDAQ: ARCP); and Amy Tait, chairman, president and CEO, Broadstone Net Lease, Inc.


Steven Wechsler and Sam Zell

Sam Zell, chairman of Equity Group Investments, LLC, offered a broad perspective on the state of the REIT industry during his luncheon conversation with NAREIT President and CEO Steven A. Wechsler.

The legendary entrepreneur predicted that the sector could double in size in the next 20 years.

"We've established a model that works," stated Zell, adding that the key to the sector's success has been "the seamless ability to convert from private to public."

Zell, who gave a landmark speech in 1993 that helped usher in the Modern REIT Era, noted that the period from 1993 to 2013 has seen the industry's market capitalization grow from $7 billion to $700 billion.

"If you can successfully negotiate in the public markets, there will be no place your assets can get a higher value," he said. While admitting that he was not able to predict the staggering growth of the industry back in 1993, "I could see that every real estate operator would find the REIT structure the most attractive format for going forward."


Stephanie Cutter and Alex Castellanos

REITWorld 2013 concluded with a look at the political landscape featuring comments from Alex Castellanos, political strategist and CNN analyst, and Stephanie Cutter, political strategist, deputy campaign manager for the 2012 Obama Re-election Campaign, deputy senior advisor to President Obama (2009-2011) and CNN political commentator and co-host of “Crossfire.”

(Contact: Pam Coleman at pcoleman@nareit.com)

 

Blair, Ferguson Receive Industry Awards

2013 NAREIT Chair Edward Walter, 2013 Industry Leadership Award recipient Bryce Blair and 2014 NAREIT Chair Ronald Havner, Jr.


2013 NAREIT Chair Edward Walter, 2013 Industry Achievement Award recipient Ritson Ferguson and 2014 NAREIT Chair Ronald Havner, Jr.

At REITWorld 2013, NAREIT presented its 2013 Industry Leadership Award to Bryce Blair, former chairman and CEO of AvalonBay Communities (NYSE: AVB), and its 2013 Industry Achievement Award to Ritson Ferguson, CEO and co-chief investment officer of CBRE Clarion Securities.

The NAREIT Industry Leadership Award is presented annually to a REIT executive who has made a significant and lasting contribution to the growth and betterment of the industry. The award is presented in memory of Edward H. Linde, the late CEO of Boston Properties.

“Bryce has made important contributions to the betterment of the REIT industry over the course of his career,” said NAREIT’s 2013 Chair W. Edward Walter, president and CEO of Host Hotels and Resorts (NYSE: HST), in presenting the award. Blair served as NAREIT chair in 2011, as well as first vice chair in 2010 and second vice chair in 2009.

“He also has provided leadership and support for NAREIT’s investor outreach program, working to increase REIT investment at the nation’s largest pension plans and defined contribution plan providers,” Walter said.

The NAREIT Industry Achievement Award is presented annually to professionals serving the REIT industry whose acumen and integrity have helped heighten awareness and understanding of the value of REITs and publicly traded real estate. The award is presented in memory of E. Lawrence Miller, the former CEO of one of the industry’s first REITs, Bradley Real Estate Trust, and a past NAREIT chair.

NAREIT recognized Ferguson for his efforts that moved REITs into the investment mainstream.

“Ritson played an important role in both telling the REIT story, and in building an investment platform to make broad-scale REIT investment possible in those formative years of the modern REIT industry,” said NAREIT 2014 Chair Ronald Havner, Chairman, CEO and President of Public Storage, who presented the award.

With two partners, he formed the predecessor company to CBRE Clarion Securities in 1991. As a dedicated REIT fund manager, he did pioneering work to introduce, explain and build acceptance among investors for the REIT investment proposition.

“Ritson’s efforts helped make possible the exceptional expansion of the U.S. REIT industry that took place in the first two decades of the Modern REIT Era. His work has helped make the industry into the vibrant marketplace it is today.”


2014 NAREIT Chair Ronald Havner, Jr., 2012 Industry Achievement Award recipient Robert Steers and 2013 NAREIT Chair Edward Walter

Robert Steers, co-chairman and co-CEO, Cohen & Steers, Inc., received the 2012 NAREIT Industry Achievement Award. The award was formally presented to Steers during REITWorld 2013.

(Contact: Ron Kuykendall at rkuykendall@nareit.com)

 

Eight Members Honored for Energy Use Practices

GRESB’s Nils Kok, David Bujnicki of Kimco Realty Corporation and NAREIT’s Sheldon Groner

NAREIT announced the winners of its annual Leader in the Light Awards, which honor NAREIT member companies that have demonstrated superior and sustainable energy use practices.

The Leader in the Light Awards are presented to REITs in eight property sectors: Health Care; Industrial; Lodging/Resorts; Office; Residential; Retail; Diversified; and Global, for non-U.S. companies.

This year’s award winners were:

• Health Care: HCP Inc.


• Industrial: Prologis


• Lodging/Resorts: Hersha Hospitality Trust


• Office: Thomas Properties Group


• Residential: AvalonBay Communities


• Retail: Kimco Realty Corp.


• Diversified: Vornado Realty Trust


• Global: British Land Company Plc

“Sustainability is a key issue for property companies today, and REITs are in the forefront of sustainable energy use practices in the commercial real estate industry,” said Sheldon Groner, NAREIT’s executive vice president for finance and operations who administers the Leader in the Light Awards program.

NAREIT has been presenting the Leader in the Light awards since 2005. Last year, the organization modified its judging criteria to include the results of the Global Real Estate Sustainability Benchmark (GRESB) Annual Survey. The GRESB Annual Survey measures the environmental performance of property portfolios around the world, and the survey format is backed by many of the world’s largest institutional investors.

Incorporating the GRESB survey results into the Leader in the Light judging criteria enables the companies competing in Leader in the Light to measure their performance against a global benchmark.

The 2013 Leader in the Light Awards applications were evaluated by a panel of three primary judges, including David Stanford of Real Foundations, Mark Vorreuter of Cornell University and Nils Kok of GRESB. Two additional judges provided guidance on the evaluation and scoring process: Douglas Gatlin of the U.S. Green Building Council and Maria Vargas of the U.S. Department of Energy.

The Leader in the Light Awards were presented at REITWorld 2013, NAREIT’s Annual Convention for All Things REIT in San Francisco.

(Contact: Sheldon Groner at sgroner@nareit.com)

 

REIT.com Videos: CEO Spotlight

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.

Hap Stein, chairman and CEO of Regency Centers Corp. (NYSE: REG), discussed Regency Centers’ development program, which has been a major story for the company this year.

“We feel that with development, which is core capability that Regency has, we can create high-quality shopping centers at very attractive returns on invested capital,” he said. “As a matter of fact, these shopping centers would be almost impossible to buy on the open market and a lot more expensive. A key part of our development strategy is using those capabilities on our existing shopping centers, enhancing the value of those through redevelopments.”

Wendy Simpson, chairman, president and CEO of LTC Properties, Inc. (NYSE: LTC), also was asked about LTC Properties’ recent development activity and the likelihood of it staying at current levels going forward.

“We got into development because we wanted to have more investments in the private-pay assets. We were finding that purchasing an already built and operating asset was very expensive in excess of replacement,” she said. “We started working with operators to build some properties. We have quite a pipeline going for 2014, and some of it will go into 2015.”

John Thomas, president and CEO of Physicians Realty Trust (NYSE: DOC), talked about the progress of his company following its $120 million initial public offering in July. Thomas described how the IPO went and what it means for his company going forward.

“We’re up about 10 percent so far, so we’re pleased. The market has been very receptive, and we’ve gotten a lot of great feedback,” he said.

Lauralee Martin, president and CEO of HCP, Inc. (NYSE: HCP ), took over as CEO earlier this year following the departure of Jay Flaherty from the position. After serving as a member of the company’s board of directors, she cited the “intensity level” as one of the biggest adjustments to her new job.

“At the board, we challenged management about strategy, competitive landscape and so forth, but when you’re in the company, you’ve got to do it,” she said. “It’s really making sure that you’re looking across the landscape, the change in the industry and where people are focused. Obviously it’s all about growth and shareholder value.”

Bruce Duncan, president and CEO of First Industrial Realty Trust (NYSE: FR), offered some insight into his company’s operating objectives.

In 2011, First Industrial Realty Trust set a goal of having 92 percent occupancy by the end of 2013. Duncan talked about their progress in reaching that goal. First Industrial’s portfolio was 86.6 percent leased when it set the goal. It was 91.2 percent leased in the third quarter of 2013.

“I’ll be disappointed if we don't hit that,” Duncan said.

Bill Bayless, president and CEO of American Campus Communities (NYSE: ACC), said during the company’s third quarter earnings call that its upcoming focus would be on “internal value creation.” He discussed the thinking behind the company’s strategy in the near term.

“2013 was a big integration year for us,” Bayless said. “2014 is really a time for us to focus on margin improvement in the core real estate and also getting our management function in place to really harness the internal value of all the external growth that we did have late in 2012 and going into 2013.”

(Contact: Matt Bechard at mbechard@nareit.com)

CIAT Encourages House Members to Extend TRIA

The Subcommittee on Housing & Insurance of the House Committee on Financial Services held a hearing last week on the state of the terrorism insurance market. NAREIT and its partners in the Coalition to Insure Against Terrorism (CIAT) offered comments to the panel in conjunction with the hearing.

The coalition expressed support for the extension of the Terrorism Risk Insurance Act (TRIA), which is currently scheduled to sunset in 2014.

“For more than a decade, TRIA has made it possible for businesses to purchase the terrorism risk coverage they need at almost no cost to the taxpayer,” the CIAT members said in written testimony submitted to the committee. “TRIA brought stability to a marketplace that was severely paralyzed following 9/11, and it remains a critical component of ensuring economic continuity following another large-scale terrorist attack.”

(Contact: Robert Dibblee at rdibblee@nareit.com)

REESA Meeting Covers Accounting, Earnings Metrics, Sustainability Issues

Koji Sawada (ARES); Philip Charls (EPRA); Tatsuo Ichii (ARES); Peter Verwer (PCA); Steve Wechsler (NAREIT); S. Michael Brooks (REALpac); Liz Peace (BPF); Bonnie Gottlieb (NAREIT)
The Real Estate Equity Securitization Alliance (REESA) met at REITWorld 2013: NAREIT’s Annual Convention for All Things REIT in San Francisco to address a number of important issues to the real estate industry worldwide.

Topics under review included proposed changes to accounting and financial reporting standards issued by the Financial Accounting Standards Board and the International Accounting Standards Board. Supplemental earnings metrics defined by REESA organizations and the development of a global uniform baseline metric were also discussed. Other areas under review ranged from industry indexes to sustainability issues and REESA’s initiative with the Global Real Estate Sustainability Benchmark (GRESB).

Attending the REESA meeting were the Association for Real Estate Securitization (Japan); the British Property Federation; the European Public Real Estate Association; the Property Council of Australia; and the Real Property Association of Canada.

(Contact: Bonnie Gottlieb at bgottlieb@nareit.com)

 

REIT.com Videos: REITWorld 2013

Dozens of REIT analysts and investors sat down for video interviews with REIT.com at REITWorld 2013: NAREIT’s Annual Convention for All Things REIT in San Francisco.

Steve Buller, portfolio manager with Fidelity Investments, analyzed which international markets surprised him in 2013 for the better.

“I would say Japan,” he said. “You have Abe economics at work. There are three things which he is trying to accomplish. First is to generate some inflation. Second, a quantitative easing program. And third, depreciating the yen. Initially, we did not see any of those three ‘arrows,’ as they call them in Japan, help the real estate sector, but more recently, we have. For example, the vacancy rate in the Tokyo office market has started to come down, and we’ve actually seen a bottoming of rental rates. I think very soon you'll see rental rates go up. So, initially, we saw the share prices do very well in anticipation of that, and now that's playing out.”

Liz Peace, chief executive of the British Property Federation, discussed how the office sector recovery in the United Kingdom has compared to the United States.

“I think the whole U.K. recovery is a very sort of mixed patchwork, as we would call it,” she said. “It depends very much on where you are and what kind of property you’ve got. So, basically, the grade-A stuff is doing pretty well, particularly in London, be that office or retail. It’s doing very well in a number of the regional cities that are big and prosperous. It’s not doing terribly well in the secondary locations.”

Paul Curbo, portfolio manager with Invesco Real Estate, has had a bullish opinion of the regional mall and apartment sectors this year, and it doesn’t sound like that will be changing in the near future.

“We still like both sectors,” he said. “I think they offer a couple different things that are beneficial to a portfolio - one being that they offer above-average growth characteristics over the next several years, so they do trade at discounts to the underlying asset value. I think for the apartment sector, it has been a bit of an underperformer as there has been new construction. That has tended to moderate internal growth. As we move into next year and the upcoming year, I think there will be other sectors that will also be experiencing new construction. I also think there are development pipelines and redevelopment pipelines that REITs have that will prove accretive to growth over the long term. For the malls, it’s really a story of no new construction within the sector, so pretty compelling growth characteristics that don’t have the supply risks that we may be seeing in some of the other sectors.”

Merrie Frankel, vice president and senior credit officer with Moody's Investors Service, was asked if REITs had stabilized their balance sheets to her satisfaction.

“Yes, to a great extent REITs have stabilized their balance sheets,” she said. “REIT metrics have gotten a lot stronger, even stronger than they were before the recession. Number one, REITs have reduced their overall leverage, and even those who have grown significantly have financed this growth through a nicely prudent mix of debt, equity and asset sales. Number two, fixed charge coverage is at all-time highs, and the REITs also have quite laddered debt maturity schedules.”

(Contact: Matt Bechard at bechard@nareit.com)

Latest Issue of REIT Magazine Now Available

The latest issue of REIT magazine is now available in print and online. This issue’s cover story is a candid conversation with legendary REIT investor Sam Zell. Zell opens up about the industry, his career and what he sees for the future.

Also in this issue, in honor of the “Class of 1993” four REIT CEOs from companies that went public in that historic year look back on 20 years in the public market and what lies ahead for their companies.

One of the defining stories of 2013 will certainly be the uptick in IPO activity. “Public Perception” looks at the factors that opened the window for so many companies to go public and how long it might stay open.

“Seven-Year Switch” details the extensive portfolio makeover DCT Industrial Trust (NYSE: DCT) has undertaken in recent years and what opportunities the company now sees going forward.

(Contact: Matt Bechard at mbechard@nareit.com)

NAREIT Welcomes Two New Members

NAREIT is pleased to welcome two new corporate members. Brixmor Property Group (NYSE: BRX) is a publicly traded, internally advised equity REIT that owns and operates the largest wholly owned portfolio of grocery-anchored community and neighborhood shopping centers in the U.S. The Brixmor portfolio is comprised of 522 shopping centers with more than 70 percent of the shopping centers anchored by market-leading grocers. Brixmor, which Blackstone recently spun off, is based in New York City. Michael Carroll is the CEO and Michael Pappagallo is the president and CFO.

RREEF Property Trust is a publicly registered, non-listed, externally advised equity REIT that invests in a diversified portfolio of office, industrial, retail and multifamily property throughout the U.S. RREEF Property Trust will also invest in equity securities, including commercial mortgage backed securities, mezzanine loans, and senior and subordinated mortgage loans. Based in New York City, RREEF Property Trust’s external advisor is related to the external advisors of RREEF America II and III, both NAREIT members. Jim Carbone is the president and CEO of RREEF Property Trust.

(Contact: Bonnie Gottlieb at bgottlieb@nareit.com)