NewsBrief (March 19, 2012)

Message from the President

As the story in this issue reports, NAREIT has just reorganized and expanded its communications-related capabilities, in part by restructuring staff organization and in part through the addition of Tom Bickford to our staff as executive vice president of Communications.

This initiative is an outgrowth of steps we began taking a few years ago at the direction of NAREIT's Officers and Executive Board to extend and deepen our capabilities to promote the REIT-based approach to real estate investment with investors from all walks of life, assorted media around the world, and other stakeholders in the REIT community, including policy makers.

Since the beginning of this initiative, we have redesigned our website, REIT.com, adding more news and an extensive section of video interviews with REIT industry CEOs, investors and analysts; conducted public relations and advertising campaigns to support our outreach to institutional investors; and more aggressively leveraged NAREIT's own research, as well as sponsored research, within the media to build REIT awareness.

More recently, we have begun a communications campaign to reach out to financial advisors to help them better understand the importance of including REITs in their clients' portfolios.

Today, REIT.com is the leading web-based resource for REIT news and investment information. Our direct outreach and communications have increased understanding within the institutional community of the role of REITs in retirement plans, as well as actual REIT investment in those plans. Additionally, we have begun to increase awareness and positive perceptions of REITs among the influential audience of financial advisors.

With added resources in place, together with Tom's leadership of our newly refashioned Communications group, we intend to build on this foundation with even more effectiveness in the years ahead to preserve, perfect and promote the REIT approach to real estate investment.






Steven A. Wechsler
President and CEO
 

REESA Comments on Revised Revenue from Contracts with Customers Proposal

On March 13, NAREIT and its global partners in the Real Estate Equity Securitization Alliance (REESA) submitted a comment letter to the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) on the boards' joint Revenue from Contracts with Customers exposure draft.

In the letter, REESA recommended that the boards make a series of revisions to the revised proposed update before issuing it as a final standard.


They include:

• Expand the scope of the revised proposed update to include all sales of real estate and investments in entities that represent "in substance" real estate to ensure that identical transactions, whether or not they represent outputs of an entity's ordinary activities, would result in similar accounting.


• Remain true to the boards' principles-based approach to revenue recognition, which is based on the notion of control, as opposed to a rule-based standard that includes a "bright-line;" and rescind the recently issued FASB Accounting Standards Update No. 2011-10, Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate - a Scope Clarification (a consensus of the FASB Emerging Issues Task Force) in its entirety.


• Clarify that services performed by the lessor to protect its own interests - instead of those performed for the benefit of the lessee, to maintain the quality, ongoing appeal, and value of the lessor's underlying asset (the investment property) - are outside the scope of the revised proposed update.


• Revise the criteria to determine whether a service is distinct, to ensure that services that are jointly negotiated with the lease contract are accounted for as one contract, i.e., the lease contract, and are therefore clearly outside the scope of the revised proposed update.


• Further explore appropriate guidance on sales involving put and call options, and consider including additional illustrative examples on this matter in the final standard.


• Expand the illustrative example on determining whether an asset has an alternative use to an entity.


• Simplify disclosure requirements on disaggregation of revenue, performance obligations and significant judgments in the revised proposed update.

NAREIT Institutes New Communications Group

Effective today, NAREIT reorganized itself at the staff level into four core operating groups: Finance & Operations, Policy & Politics, Research & Investor Outreach and the newly formed Communications group. The Communications group consists of NAREIT's communications, publications, marketing and business development activities.

To lead that effort, Tom Bickford has joined NAREIT as executive vice president, Communications. Prior to joining NAREIT, Bickford served as senior vice president of corporate communications for the consumer bank at Bank of America's headquarters in Charlotte since 2003. In that role, he was responsible for the strategy and execution of internal and external communications, including media relations, employee communications, reputation management, events, executive communications and speech-writing. In addition, he spent a year in the deposits business, where he led the customer experience organization and was responsible for creating the strategy and tactics to earn customer loyalty, build stronger business practices and a more customer-centric culture.

Prior to joining Bank of America, Bickford held a variety of corporate communications leadership roles at Mirant and Nortel Networks. And, earlier in his career, he was a reporter for the Phoenix Gazette. Bickford earned a B.S. in journalism from Arizona State University.

(Contact: Tom Bickford at tbickford@nareit.com)

REIT.com Video: Jeff DeBoer, The Real Estate Roundtable

Public debate in this election year could affect policy decisions regarding commercial real estate, according to The Real Estate Roundtable President and CEO Jeff DeBoer. This could include legislative reform of the Foreign Investment in Real Property Tax Act (FIRPTA) and regulations dealing with the commercial mortgage-backed securities (CMBS) market and liquidating distributions.

(Contact: Matt Bechard at mbechard@nareit.com)
 

Shedding Light on PREA's Spring Conference

Despite the challenges of a major power outage that affected much of Boston's Back Bay, the Pension Real Estate Association (PREA) held its 2012 Spring Conference on March 14 and 15 at the Westin Copley Place Hotel in Boston. While the venue was in darkness for all but the final two sessions of the conference, this year's program was intended to shed light on current macroeconomic, capital markets, and political issues impacting institutional real estate investment globally.

The event featured presentations and panel discussions focused on a range of topics including the impact of the U.S. presidential election on the global economy, global volatility and opportunities that it might present for real estate investors; where new capital for real estate is coming from and where it is going; and how evolving U.S. and European banking regulations might impact financial institutions' involvement in commercial real estate in the future.

During a panel discussion among several large investors comprised of a sovereign wealth fund, a U.S. corporate pension plan sponsor, a Canadian public pension fund sponsor, and a major U.S. educational endowment fund, there was a general consensus that there are opportunities for investors in commercial real estate in the coming year, and that they expected to commit new capital to the asset class. Several of the panelists emphasized that, rather than investing to meet certain portfolio asset allocation targets, their approach was to deploy capital to any new investment on the basis of its relative attractiveness to other investment opportunities available, regardless of asset class. However, in general, most suggested that, within the real estate asset class, the focus over the coming year would continue to be primarily on the U.S., and in identifying strategies that would allow them to create value by capitalizing on 'distressed' situations in both the equity and debt markets.

While the conversations were largely focused on private real estate market investment strategies, it was acknowledged that listed REITs have played a critical role in the current market cycle. In addition, it was noted that investment products combining both listed and private real estate were gaining interest among certain investor groups, in particular among traditional retail investors and within defined contribution structures.

The conference also featured a consultant roundtable discussion with representatives from several leading investment consulting firms, discussing how the traditional investment consultant model is evolving to meet the demands of a changing investor market place. Debate panel subject matters included a wide range of issues such as industry consolidation, the provision of discretionary versus non-discretionary services, and proprietary investment offerings and how the consulting community is dealing with the challenges of managing conflicts of interest arising from these issues.

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

REIT.com Video: Bob O'Brien, Deloitte

Several macroeconomic trends will influence how commercial real estate will progress, said Bob O'Brien, U.S. real estate services leader at Deloitte. Unemployment remains high, and consumer incomes are stagnant.

"This economic recovery is still very fragile," O'Brien said. At the same time, he noted that the CMBS market is starting to revive, which is good for real estate. "With the amount of debt coming due over the next few years, we need a properly functioning CMBS market."

(Contact: Matt Bechard at mbechard@nareit.com)

Panel Looks at CRE Recovery

NAREIT Vice President of Publications Matt Bechard moderated a discussion on the U.S. commercial real estate recovery at the third-annual Akerman U.S. Real Estate Summit in Miami, FL. The discussion, which included Thomas Sittema, CEO of CNL Financial Group, and Vincent Signorello, president of Flagler, touched on fundamentals, capital markets, development and the impact of this year's election.

Sittema, a member of the executive committee of NAREIT's Public, Non-Listed REIT Council, later discussed in a REIT.com interview the evolution underway in the non-listed REIT space and the importance of those companies working together.

"In many respects, while this industry has been around for decades, we are going through a reset in the industry," Sittema said, adding that a lot of changes are going on structurally toward better alignment and better disclosure. "It is a perfect time for the leaders in the industry to come together as we institutionalize this industry, not unlike how the traded REIT industry was institutionalized and came together collaboratively in the early and mid 1990s."

(Contact: Matt Bechard at mbechard@nareit.com)

REIT.com Video: Judith Fryer, Greenberg Traurig

Judith Fryer, a corporate securities attorney with Greenberg Traurig who specializes in REITs and commercial real estate, is skeptical that there will be, as many believe, a flood of REIT IPOs this year. Valuations are the main reason.

"If you have a situation where someone doesn't need to be pricing, they're not necessarily willing to take that haircut," she said.

(Contact: Matt Bechard at mbechard@nareit.com)

Planting the Seeds for Timber REIT Growth

Timber REITs currently account for just over 5 percent of total listed REIT equity market capitalization. And while the sector clearly felt the impact caused by a slowdown in new home construction, a recent REIT.com article highlights how timber REITs are poised to harvest positive results going forward.

Rick Holley, Plum Creek Timber Company (NYSE: PCL) CEO, summarized the outlook on timber in general and how he believes his company will perform going forward. "From an investor's perspective, you should start to see improvement in the sector overall in 2012 and beyond." Of all the Timber REITs, Plum Creek has probably been most affected by the housing downturn, as 40 percent of all its lumber is generally apportioned to housing.

Holley added, "as we start to see housing improve, timber will be a good investment going forward. And specifically for Plum Creek, housing demand will equate to higher cash flows and earnings over time as the market recovers."

With the housing market depressed, Potlatch Corporation (Nasdaq: PCH) recently decided to lower its harvest level to 3.5 million tons in order to preserve resources and take advantage of better markets in the future. The company's resource segment cash flows remain temporarily depressed, but most analysts covering timber believe housing has now bottomed and is beginning to recover. "When we see increased demand and pricing for our saw logs, we'll increase our harvests and, ultimately, we expect to increase our dividend," Potlatch CEO Mike Covey said.

(Contact: Allen Kenney at akenney@nareit.com)

REIT.com Video: Michael Landy, Monmouth Real Estate Corporation

Fundamentals in the industrial space are improving, Monmouth Real Estate Investment Corporation (NYSE: MNR) Chief Operating Officer Michael Landy said, with net absorption rates posting in the positive territory for six consecutive quarters and vacancy rates declining.

"Consequently, rents have stabilized and are even trending higher in some markets," he said.

Landy added that the industrial sector is highly correlated to the broad economy, and as the economy continues to improve, so will the amount of new development in the industrial space. He said meaningful new construction should return sooner rather than later.

(Contact: Matt Bechard at mbechard@nareit.com)