NewsBrief (August 11, 2014)

Message from the President

Ratings agency Fitch Ratings issued a special report this week praising the REIT industry’s corporate governance standards. After studying 64 U.S. stock exchange-listed Equity REITs, Fitch determined that “most have strong governance qualities in areas such as board declassification, member independence, member industry background diversity and experience.” Fitch also pointed out that the majority of companies covered in the study use credit metrics as part of their compensation targets for management, which is a positive for bondholders.

Fitch’s analysis underscores one of the primary benefits of the REIT approach to real estate investment for bondholders and shareholders. Operating as a publicly traded company requires REITs to maintain a rigorous level of transparency. Furthermore, investors generally reward the companies that implement effective corporate governance programs and meet the standards placed upon them.

The Global Financial Crisis illustrated the importance of both balance-sheet management and corporate transparency. REITs emerged stronger from the financial meltdown thanks in some measure to governance parameters welcomed by the public markets. As Fitch’s report demonstrates, the salutary effects of sound corporate governance extend to the credit markets as well, further broadening REITs’ access to capital.






Steven A. Wechsler
President and CEO

REIT Bondholders Benefitting from Strong Corporate Governance, Fitch Ratings Finds

Most U.S. stock exchange-listed Equity REITs have strong corporate governance attributes that benefit bondholders, according to a report from ratings agency Fitch Ratings, Inc.

Based on its review of 64 U.S. Equity REITs, Fitch concluded that “corporate governance is pretty strong for bondholders in the REIT space,” said Sean Pattap, a senior director at Fitch. “The positives outweigh the negatives,” he added.

Fitch noted that corporate governance analysis is an integral part of evaluating a bond’s risk profile because weaknesses may impair a company’s anti-takeover defenses or raise the influence of activist shareholders, which could increase the implied riskiness of a bond.

Pattap highlighted a number of corporate governance attributes that benefit REIT bondholders. They include board declassification, member independence and diversity, and the incorporation of credit metrics into management compensation targets.

(Contact: Sarah Borchersen-Keto at sborchersen-keto@nareit.com)

FASB Decisions on the Classification and Measurement for Equity Investments

The Financial Accounting Standards Board (FASB) on July 30 continued its deliberations on the Accounting for Financial Instruments – Classification and Measurement Project. At the meeting, the board reaffirmed the guidance included in the February 2013 proposed Accounting Standards Update, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities related to the classification and measurement of equity investments.

The board decided that all investments in equity securities would be measured at fair value through net income, with two exceptions:

• Investments in equity securities accounted for under the equity method of accounting; and


• Investments in equity securities without readily determinable fair values for which the entity has elected to apply the practicality exception to carry them at cost, adjusted for both impairment and observable price changes.

CLICK HERE for more information from NAREIT on the developments.

(Contact: Chris Drula at cdrula@nareit.com)

 

NAREIT Mortgage REIT Council Backs Treasury’s PLS Efforts

The NAREIT Mortgage REIT Council wrote to the Treasury Department last week to offer comments on the role that private label securities (PLS) should play in the housing finance system.

The council said it supported Treasury’s efforts to revive the PLS market.

“Today, MREITs play a small but highly consequential role in the U.S. agency RMBS markets, and have been an especially important source of private sector capital in the aftermath of the financial crisis, a period when many other market players withdrew,” the council wrote. “We believe that MREITs are ideally poised to play a similar role in the PLS market, which historically has served an important niche in U.S. residential finance.”

(Contact: Victoria Rostow at vrostow@nareit.com)

REIT.com Video: Broad Economy Impacting REIT Market Sentiment

In the latest edition of Quick Study, Brad Case, NAREIT’s senior vice president for research and industry information, offered an analysis of how the REIT market performed in July after a strong showing in the first half.

The total return on the FTSE NAREIT All REITs Index dipped 0.2 percent in July, although the decline was smaller than the 1.4 percent fall in the S&P 500 Index. For the year through July 31, the FTSE NAREIT All REITs Index had a total return of 15.9 percent, compared with a 5.7 percent gain by the S&P 500.

Case observed that in July, investors were concerned about the state of the macro economy and whether the Federal Reserve “might get ahead of the macroeconomic growth picture in allowing interest rates to rise.”

CLICK HERE for more of Case’s interview with REIT.com.

(Contact: Brad Case at bcase@nareit.com)

NAREIT’s Despins Selected for PAPERS Corporate Advisory Board Seat

Meredith Despins, NAREIT’s vice president for investment affairs and investor education, has been named to a seat on the corporate advisory board of the Pennsylvania Association of Public Employees Retirement Systems (PAPERS).

Collectively, members of PAPERS represent the interests of more than 500,000 public employees and retirees with combined total pension fund assets of more than $90 billion. The corporate advisory board is selected from PAPERS membership and consists of professionals from investment management, investment consulting and asset servicing organizations. Its role is to act as a liaison between the corporate community and PAPERS, providing guidance to PAPERS executive staff members.

(Contact: Meredith Despins at mdespins@nareit.com)