REIT disclosures help broader market

Most investor relations people are champions of disclosure – believers in the value of transparency for shareholders, as well as investors who might buy our stocks.

Now an article on the 50th anniversary of Real Estate Investment Trusts in National Real Estate Investor says the entire market – private and public – has gained from the emergence of publicly traded REITs and reliable financial data:

Thanks to Wall Street and a wave of IPOs [in the 1990s], modern REITs have not only provided liquidity to the commercial real estate industry, they have also upped the level of sophistication of financial reporting.

Ralph Block, a REIT investor and author of The Essential REIT, says the data in public disclosure makes a big difference from real estate investing years ago:

There has been an absolute revolution in disclosure and that’s true for most public companies. There is a lot more information available about not only the company, but also the properties.

Adam Markman, managing director of the independent real estate research firm Green Street Advisors, adds:

We think that the amount of information you can pull out of these publicly traded companies is helpful for the whole industry.

The benefit of “comps,” or comparative data on asset values and returns, probably carries over in many industries beyond real estate. Private equity investors and investment bankers often look to SEC filings of the public companies in a sector, as well as private information, to evaluate deals or valuations of companies.

The real estate industry also benefits from an education-minded trade group, the National Association of Real Estate Investment Trusts (NAREIT), that collects a wealth of data on real estate assets and returns – and puts the numbers out there on its website for investors (public or private) to track and use. Many trade groups keep data they gather close to the vest – to the detriment of their industries.

Of course, REITs haven’t had an easy go of it during the recent global meltdown-collapse-crisis-whatever-alarmist-name-you-want-to-call-it. For a typical REIT investor, these stocks are all about dividends – and generating the earnings or funds from operations to keep those dividends flowing is a challenge these days.

Referring to the three dividend cuts by mall owner CBL & Associates, REIT analyst Christopher Lucas of Robert W. Baird & Co., says:

That was a significant hit to the individual investor’s trust in the vehicle and in the operations, and it’s going to take some time to earn that trust back. … Now they have to rebuild the trust that investors placed in them to manage their balance sheet and their dividend much more consistently.

Managing performance to rebuild trust, of course, is what many companies in all industries are seeking to do as the economy bounces along in what seems to be an extended trough. Robust disclosure of results will aid in winning back that trust.

© 2010 Johnson Strategic Communications Inc.

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