Phil Owens, senior vice president for advisory and consulting at Green Street Advisors, joined REIT.com for a video interview at REITWeek 2016: NAREIT’s Investor Forum at the Waldorf Astoria New York.
Owens commented on the newer breeds of externally advised REITs that have emerged recently.
Today, the externally advised REITs impose a single fee and operate with an alignment of interest between the external advisor and the REIT shareholders, he explained.
However, the challenge for some of these newer companies has been the addition of long-term management contracts, Owens said. These contracts impact the value of the company because if they are cancelled, all of the payments are accelerated, he noted.
“We’re not sure if the external REITs of the past are better or worse than some of these newer breeds we see today,” Owens remarked.
At the same time, the share price performance of these companies is “somewhat mixed,” he noted. “The real story here is in their cost of capital. REIT shareholders vote with their dollars, and they’ve voted consistently down on external advisors,” Owens said.
He added that externally advised REITs might show a share price performance that’s consistent with a peer set, yet they trade at a “massive discount” in terms of their overall value relative to their internally managed peers.
“That cost of capital challenge makes it very difficult for these companies to grow in a way that’s value-accretive,” according to Owens.
Owens also discussed possible changes to the externally advised REIT model.
“At the end of the day, we’re putting a lot of energy into finding a structure that’s not as good as one that’s tried, true and tested, which is the internally advised structure,” he said.