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December 10, 2012
Message from the President
 Building understanding of the REIT investment proposition among Members of Congress is one of NAREIT's highest priorities, and REITPAC, the REIT industry's only political action committee, is one of our most important tools for achieving this objective.
In 2012, under the leadership of REITPAC Chair Ed Walter, President and CEO of Host Hotels & Resorts, REITPAC raised a record amount of funds from a record number of donors and made contributions to 228 Members of Congress and leadership PACs. Importantly, 88 percent of the candidates REITPAC supported this year won their elections.
The REIT industry's issues are bipartisan in nature, and REITPAC's giving reflects that orientation, with 55 percent of contributions going to Republican Members and PACs in 2012 and 45 percent going to Democrats.
REITPAC is developing new strategies to involve NAREIT members in the coming year under the leadership of 2013 REITPAC Chair Ron Havner, Chairman, President and CEO of Public Storage.
While REITPAC is a cornerstone of our program to ensure the industry's voice is heard on Capitol Hill, it is not our only tool to educate Members of Congress abut REITs and their contributions to job creation and economic growth. Another important tool is our grassroots outreach program, which demonstrates to Members the positive impact of REITs within their own states and districts.
Grassroots program elements include property tours arranged for NAREIT members with their Members of Congress, as well as local political events and personal visits. This year, NAREIT organized and participated in 62 grassroots events, up from 39 events in 2011. We intend to expand the grassroots program further in 2013, and if you would like to host your elected representative on a property tour in the coming year, we would appreciate hearing from you.
Steven A. Wechsler
President and CEO
NAREIT Expresses Support for Commercial Building Modernization Act
 NAREIT joined a host of real estate industry organizations in voicing support for the Commercial Building Modernization Act (S. 3591).
The organizations wrote a letter of support to Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Orrin Hatch (R-UT), as well as to Senate Committee on Energy & Natural Resources Chairman Jeff Bingaman (D-NM) and Ranking Member Lisa Murkowski (R-AK). The letter was sent in advance of a Dec. 12 Energy Subcommittee of the Senate Finance Committee hearing on tax reform and energy policy.
 The legislation would extend and enhance the tax deduction at Section 179D of the Internal Revenue Code for energy efficient commercial and multifamily buildings. Sens. Olympia Snowe (R-ME), Jeff Bingaman (D-NM), Dianne Feinstein (D-CA) and Ben Cardin (D-MD) introduced the bill.
"Increased focus on policies to make existing buildings (as opposed to new construction) more energy efficient is important, because it is estimated that 80 percent of the structures that stand today will still be part of our landscape in 2050," the organizations said. "As our industry continues the slow climb out of the recession, initiatives like the CBMA are needed now more than ever to leverage greater private investment in U.S. real estate, create American construction and manufacturing jobs, save businesses billions of dollars in utility bills and help make our nation more energy secure."
(Contact: Dara Bernstein at dbernstein@nareit.com)
REIT.com Videos: CEO Spotlights
REIT.com's video team sat down with 35 REIT CEOs during REITWorld 2012 to get their insights into their companies and trends they are watching. New videos will be made available on REIT.com regularly for the next several weeks. Below is a sample of the interviews currently available.
 The industrial real estate space continues to make steady progress, said Bruce Duncan, president and CEO of First Industrial Realty Trust (NYSE: FR). Duncan likened the industrial recovery to the fifth inning of a nine-inning game. "The world economy is getting better. Markets are absorbing industrial space," he said.
 Since going public, Retail Properties of America (NYSE: RPAI) has focused on obtaining its pre-determined strategic goals, said Steven Grimes, president and CEO. This included concentrating on core properties and deleveraging its balance sheet. "The refined focus gives us better clarity on who we are; on what direction we are going in terms of the multi-tenant retail front," he said. "But most importantly it allows us to take advantage of growth in the portfolio."
 The political uncertainty in Washington, D.C., is having an impact on leasing in Washington Real Estate Investment Trust's (NYSE: WRE) core markets, said George "Skip" McKenzie, president and CEO. "Most of that negative absorption has been people waiting to see what the effects of the fiscal cliff are, where the government is going and how that is going to affect leasing in the D.C. area," he said. "It has had a negative impact on a macro level in our region."
 Ed Pettinella, president and CEO of Home Properties (NYSE: HME), said 2013 will be another strong year for acquisitions in the multifamily space. "The good news is we are in an environment where interest rates are so low we are seeing all of our deals at an unprecedented level being accretive day one, meaning we are making money day one," he said. "In the previous years it would take about a year or year-and-a-half to see the returns come forward."
 The operations of Corporate Office Properties Trust, which focuses on federal government tenants, have been affected by uncertainty arising from the debate over the "fiscal cliff" and sequestration, said Roger Waesche, president and CEO of Corporate Office Properties Trust (NYSE: COPT). However, he said, there are opportunities in cybersecurity in the Baltimore-Washington corridor. "There are also pockets of growth in Huntsville, Ala., where there are certain missions that have been given appropriations that have allowed them to push forward, notwithstanding the uncertainty in the overall budget," he said.
(Contact: Matt Bechard at mbechard@nareit.com)
CFTC Clarifies Position on Mortgage REITs
 On Dec. 7, the U.S. Commodity Futures Trading Commission (CFTC) Division of Swap Dealer and Intermediary Oversight issued a no-action letter clarifying that mortgage REITs that hedge with swaps and meet certain criteria will not need to register as commodity pools with regard to bona fide hedging transactions. However, to claim this no-action relief, a mortgage REIT must submit a notice to the division.
This issue arises because the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) gave the CFTC jurisdiction over swaps for the first time and amended the CFTC's long-standing definition of "commodity pool" to include references to swaps, which are utilized by both equity and mortgage REITs to hedge financings.
In the no-action letter, the division states that mortgage REITs satisfying the following conditions, and are in compliance with IRS REIT election requirements, do not need to register as commodity pools:
The initial margin and premiums required to establish the mortgage REIT's commodity interest positions do not exceed 5 percent of the fair market value of the mortgage REIT's total assets;
The net income derived annually from its commodity interest positions that are not qualifying hedging transactions are less than 5 percent of the mortgage REIT's gross income;
Interests in the mortgage REIT are not marketed to the public as or in a commodity pool or otherwise as or in a vehicle for trading in the commodity futures, commodity options, or swaps markets.
This no-action ruling follows on the Oct. 11, 2012, interpretive ruling NAREIT obtained from the CFTC stating that equity REITs that use derivatives only to hedge interest rate or currency risk (and which comply with IRS REIT election requirements) will not be considered commodity pools.
(Contact: Victoria Rostow at vrostow@nareit.com)
NAREIT Joins Effort to Promote Real Estate Investment in DC Plans
Last month, NAREIT Senior Vice President Kurt Walten participated as a member of the executive committee at the inaugural meeting of a newly formed organization, the Defined Contribution Real Estate Council (DCREC). In its founding documents, DCREC is described as being formed "... to promote the inclusion of investments in direct commercial real estate and real estate securities within defined contribution plans by furthering education about, advocacy for and best practices of such investments."
The co-presidents of DCREC are David Skinner, principal, Defined Contribution Practice Leader for Prudential Real Estate Investors and Scott Brooks, director and head of U.S. Retail and Defined Contribution for RREEF. As a founding member of DCREC, NAREIT has been asked to serve as a member of the organization's research committee and to co-chair, with TIAA-CREF, its marketing and public relations committee.
By becoming a member of DCREC, NAREIT is joining a number of organizations promoting real estate solutions to the defined contribution market. They include Clarion Partners, Goldman Sachs, Principal Global Investors, Prudential Real Estate Investors, RREEF, State Street Global Advisors, Ten Capital, TIAA-CREF and UBS. Other members of the investment management and investment consulting community are expected to participate.
(Contact: Kurt Walten at kwalten@nareit.com)
REIT.com Videos: Industry Insights
REIT.com's video team sat down with nearly 70 industry leaders during REITWorld 2012 to get their insights into the current state of the REIT market, where things are heading in 2013 and what specific issues and trends they are watching. New videos will be made available on REIT.com regularly for the next several weeks. Below is a sample of the interviews currently available.
 Investors' understanding of the REIT industry has improved over the last five years, said Ralph Block, author of "Investing in REITs" and longtime industry veteran. There are still areas of confusion, however. "I think probably the biggest misconception relates to risk. We were probably on the way to dispelling that up until the great recession, and then we had the problem where REITs had to scramble to raise a lot of equity capital and pay off debt," he said, adding that the last 12 months have helped dissipate that concern again.
 Large institutional investors in Europe are increasingly viewing REITs as real estate investment vehicles, said Philip Charls, CEO of the European Public Real Estate Association. "We have players like APG, one of the biggest players in the world, have about $25 billion exposure to real estate, 50 percent direct and 50 percent listed," he said.
 The credit markets are wide open for REITs, with liquidity robust and issuance unprecedented, Merrie Frankel, vice president and senior credit officer with Moody's Investors Service, said. "So far there's been approximately $60 billion in issuance this year. Definitely the public markets have been open for companies and they've had access for all four quadrants: debt, equity, public and private," she said.
 The U.S. is catching up to other countries in terms of energy efficiency in buildings, said Nils Kok, professor at the University of California-Berkeley and founder of the Global Real Estate Sustainability Benchmark. "The leaders in the U.S. actually aren't far behind the leaders in other regions, if they're not the same or better," he said. "The average performance in the U.S. is similar to Europe and Asia. Australia is still leading the pack."
 REITs have been "remarkably resilient" in their efforts to tap the capital markets and improve their balance sheets, said Keven Lindemann, director of SNL Real Estate. "What we've seen over the last couple of years is, really, very strong performance both by the companies and by the stocks. Investors are still very supportive of the sector," he said.
 The health care REIT industry benefited from fragmentation and the low cost of capital, which led to a consolidation in senior housing and skilled nursing, said Jeff Theiler, analyst with Green Street Advisors. Next he predicts consolidation among hospitals. "That might be a few more years down the road, but that might be the direction it goes in," he said.
 REIT stocks have posted strong performance for the last few years, and investors will be looking for signs of overvaluation, said David Toti, senior managing director with Cantor Fitzgerald. "Going forward, the big story is not going to be what you expect in terms of fundamental issues or balance sheet issues. I think, honestly, the issue is going to be REITs maintaining investor interest after many years of outperformance," he said. However, some sectors will continue to pleasantly surprise investors, he said, including office and multifamily.
(Contact: Matt Bechard at mbechard@nareit.com)
Storage, Lodging REITs Enjoy Strong November
 U.S. REIT stocks faced another dip in performance in November, but some industry analysts attribute that to continued uncertainty in the market place. The FTSE NAREIT U.S. Real Estate Index series showed that total returns of equity REITs were down 0.27 percent for the month, while all REITs were down 0.29 percent.
While REITs are down for the third consecutive month, Brad Case, NAREIT's senior vice president of research and industry information, said REITs are still outperforming the broader market in 2012 so far. The lodging, self-storage and health care sectors were the strongest performers in November, posting gains of 2.03 percent, 2.14 percent and 1.37 percent respectively.
"That's especially interesting with respect to the lodging sector because that has been among the weakest performers year to date," Case said. "What that tells me is that investors have been concerned about increases in vacation and business travel, and during November they became a bit less concerned and a little bit more sanguine about the prospects or earnings growth going forward."
Mortgage REITs, which were down 3.36 percent and apartment REITs, which were down 2.96 percent, were the weakest performers in the REIT industry in November.
Additionally, with the holiday shopping season in full swing, Case discussed retail REITs' performance. While retail REIT stocks did not see major movement in November overall, Case explained that investors were reassured by retail spending.
"Investors in retail REITs have gained nearly 24 percent over the year as a whole. What that tells us is that November wasn't a month of surprises for investors in retail REITs. They had been very happy for the prospects for retail REITs and retail real estate going forward," he said.
(Contact: Brad Case at bcase@nareit.com)
NAREIT comments on FASB's Disclosure Framework Discussion Paper
 On Nov. 30, NAREIT submitted a letter to the Financial Accounting Standards Board (FASB) in response to the board's invitation to comment on the Disclosure Framework.
NAREIT supported the board's objective to improve the effectiveness of disclosures in the notes to the financial statements by clearly and concisely communicating the information that is most important to users of financial statements. NAREIT offered the following recommendations that should assist the board in developing an effective framework that would promote consistent decisions and the proper use of discretion by the board, financial statement users, preparers, auditors and regulators alike:
Engage all interested constituents, including regulators (i.e., the Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB)), preparers, analysts, and auditors, in field testing of the Disclosure Framework.
Clearly define financial reporting boundaries for the types of events that would generate changes in future cash flows.
Utilize the Disclosure Framework to determine minimum disclosure requirements for each accounting standard that would be included in all financial statements, regardless of industry.
Collaborate with the SEC to eliminate existing redundancies between the notes to financial statements and disclosure requirements contained in Management's Discussion and Analysis (MD&A).
Develop a financial reporting model that delineates which disclosures belong in the notes to the financial statements as opposed to MD&A.
Ensure that interim disclosures are not a mere repeat of the annual disclosures unless there is a material change.
Maintain a summary of critical accounting policies in annual financial statements in order to preserve financial statements as a self-contained document.
(Contact: Christopher Drula at cdrula@nareit.com)
Save the Date for REITWise
Join your legal, financial and accounting colleagues at REITWise 2013: NAREIT's Law, Accounting & Finance Conference, March 20-22, 2013. Approximately 1,000 professionals attend each year to hear industry leaders speak at the variety of sessions, roundtables, meetings and events offered over the course of three days.
Topics covered include the latest legal, financial and accounting insights concerning capital markets, financial standards, SEC policies, tax updates and more. By attending, you can earn valuable CPE or CLE credits to meet your mandatory educational requirements.
Adding value to the event are the many networking and social opportunities to connect with peers and colleagues in a collaborative setting.
Registration for REITWise 2013 will open on Dec. 17. Visit the REITWise Event Page to get all the details regarding the event as they become available.
(Contact: Afia Nyarko at anyarko@nareit.com)
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