05/10/2012 | by
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Succession Plans Coming in Place for REITs

More REITs are beginning to understand the importance of having defined succession plans in place for top management, according to Larry Portal, senior managing director, FTI Consulting.

In a video interview in March with REIT.com at REITWise 2012: NAREIT's Law, Accounting & Finance Conference in Hollywood, Fla., Portal spoke about succession plans, corporate governance and compensation.

Portal said there's a clear realization in the REIT industry today that in order to run the business adequately, there needs to be proper leadership in place.

"Certainly in the last 10 years or so more, REITs have woken up to the fact that they need a proper succession plan in place," he said. "Up until the last 10 years REITs have lagged the broader industry in that area."

He attributed that point to the fact that most of the REIT companies were started by entrepreneurs. Portal added that often those are the same people who are running their business today.

"It's very hard to broach this idea of succession with your typical REIT entrepreneur who is now running a public company," Portal said.

When it comes to corporate governance, he said REITs are very cognizant of corporate governance guidelines.

"They are very sensitive to Institutional Shareholder Services (ISS) and their guidelines and the large institutional investors who may have their own guidelines, separate and apart from ISS," he said. "They've done a really great job compared to the broader industry."

However, Portal pointed out that one area were REITs can improve is separating the position of chairman from that of the CEO.

In terms of trends in executive compensation, while REITs used to have simple compensation programs several years ago, they have recently evolved, according to Portal.

"Today, the programs have really changed where REITs have revamped their programs to be more closely aligned with executive compensation based on performance," he said.

Portal also said one of the biggest changes he has seen in the last decade has been the rise of so called outperformance plans. Under these structures, he said, management doesn't participate in any awards until shareholders receive a requisite return first.