Simplicity Key to Good REIT Management
06/25/2012 | by Allen Kenney

Simplicity is the hallmark of a great REIT management team, according to Craig Leupold, president of research firm Green Street Advisors.

In a video interview with REIT.com at REITWeek 2012: NAREIT's Investor Forum, Leupold said these management teams consider it their primary mission to own real estate in a liquid format. As such, their goal should be to beat returns on real estate that would be available on an unlevered basis.

"What we're saying is keep it simple," Leupold said.

Signs of strong management teams include possessing an understanding of their core competencies, according to Leupold. He said signs of this include a company's track record when it comes to capital allocation. Another is how a company manages its balance sheet.

"What we mean there is keeping leverage to a relatively low level such that they can take advantage of opportunities in the market that they see, while also limiting downside risk that might come through periods of time when capital markets are out of favor," Leupold said.

Investors "absolutely" continue to view REITs as a stable investment option, according to Leupold. He said the quality of REIT management teams make them an appealing investment option. REIT's liquidity and operational efficiency with low general and administrative costs also hold appeal for investors, Leupold said.

Another attractive feature of the REIT approach to real estate investment is transparency, according to Leupold. Leupold also emphasized the ability of REITs to buy and sell their stock and tap the equity markets in response to changing market conditions.

"These companies can take advantage of their stock when it's trading at a premium to underlying real estate value by basically issuing equity and going out and buying real estate in the private market," Leupold said. "Vice versa, when they're trading at a discount to net asset value, they can sell assets and redeploy that capital and repurchase their stock. They have an advantage that's not available in the private market.