REIT IR executives are proactively engaging with stakeholders as they address a range of key issues.
As REITs continue to adapt to changes resulting from the pandemic, investor relations (IR) executives are more involved than ever in staying closely attuned to corporate performance, market sentiment, regulatory developments, and more.
Many REIT IR executives say the pandemic has resulted in lasting changes to the way their function operates, including increased digital interaction with investors alongside more focused in-person engagement.
REIT magazine spoke with four REIT IR executives to get a sense of the key issues and developments they are focused on in 2022.
Do you see the pandemic producing lasting changes in terms of how the IR function operates?
Brady: Absolutely. Technology played a much larger role in the IR function during the pandemic than it had historically. Going forward, I expect that technology—Zoom meetings, virtual non-deal roadshows (NDRs), virtual property tours—will remain an important part of our IR strategy as well as traditional in-person events. We still find in-person meetings, conferences, property tours, etc. most effective and we are very excited for investors and our corporate team to get back on the road in 2022.
Burke: We are in the midst of pandemic-related and broader changes that are evolving the way companies do business. As a result, there will be lasting change in the IR function into the future. The core IR focus on appropriate communication of company strategy is unchanged. However, the strategies themselves and the channels through which they are being communicated have evolved and will continue to do so.
Management teams are rightly focused on what they can do strategically to position for success in the dynamic environment. IR teams, therefore, are recalibrating how to best message, to whom, and through which channels (e.g., virtual, in-person, hybrid). In this regard, lasting change is already here.
Gentry: When the pandemic first began, I wondered how my day-to-day in IR might evolve as conferences and NDRs are a large part of the job. As it turns out, the introduction of virtual technology was a positive for the IR function. The number of meetings increased, other members of senior management could be present, and more regular communications could be achieved with investors and analysts.
While some are looking forward to in-person meetings, I think the virtual environment is here to stay, and allows for efficiencies in communicating with the analyst and investor community. I also believe the pandemic forced more companies to disclose more than they may have had in the past.
Newcom: We do expect lasting changes to the IR function post-pandemic. Specifically, we plan to more regularly leverage digital engagement tools, including virtual meetings, with management because they are an efficient use of time and are a great way to reach a broad audience. For our in-person engagement, we will look to be more targeted on which conferences we attend as well as focusing in-person meetings towards larger, long-term holders of our shares.
What are some of the key concerns or questions you are hearing from the investment community?
Gentry: More broadly across the industry, questions arise around interest rates and what is happening geopolitically. Our focus on the industrial sector has helped mitigate some concerns that may be impacting other REIT sectors. We didn’t experience rent collection issues or weak sector fundamentals.
Brady: Investors are evaluating what they believe the ‘new normal’ will look like—which COVID trends are here to stay and which ones have been overblown. There are obviously a lot of concerns over rising inflation and interest rates, increased gas prices, and the geopolitical backdrop.
We also continue to see a heighted focus on ESG as investors grapple with how best to factor ESG into their investment strategies.
Burke: The concerns are primarily macro in nature and include the potential impacts of economic and geopolitical events on our business. In response, we are able to point the investment community to the demonstrated resilience of the self-storage business, and Public Storage in particular, during past times when similar concerns proved warranted in relation to the macro environment.
Newcom: The main areas of concern are focused on the macro environment. Investors are concerned about inflation and rising energy costs, the global supply chain, the rising rate environment in the U.S., and of course the tragic events in Ukraine.
While our business has continued to perform well, the broader uncertainty created by macroeconomic and geopolitical uncertainty has and will continue to be a focus given the capital intensive and global nature of our business.
Have you seen a growing interest from investors in workforce statistics such as pay, training, hiring, retention, and demographics?
Brady: In general, we are seeing a lot more focus from the investment community on the social components of ESG, specifically diversity, equity, and inclusion. Historically, Federal’s commitment to DEI dates to the mid-1980s with our leadership and board of trustees setting the tone for the organization. Since then, we have continued to build out a programmatic approach to ensure we’re reaching diverse candidates when recruiting, removing opportunities for unconscious bias during the hiring process, and providing an inclusive culture for all employees.
Newcom: We’ve seen a significant increase in investor interest for all areas of ESG including workforce metrics and statistics. In our annual corporate sustainability report, we disclose a variety of metrics around our workforce on demographics, parental leave, and employee satisfaction under the global reporting initiative (GRI) framework.
Burke: Greater interest in the workforce among investors has come with the broader trend towards sustainability and the reporting thereof. We communicate the diversity, inclusivity, and dedication to our workforce through a detailed sustainability report, SEC filings, Equal Employment Opportunity Report (EEO-1), and additional means. The growing interest from investors is logical given that the social aspects of any business are critical to long-term resilience.
Gentry: Disclosure of workforce statistics is certainly an area of focus for the index funds. While we currently only track most of these statistics internally, we do disclose gender and ethnicity data in various documents. Diversity is of particular interest to some investors, but more broadly, questions related to ESG are now typically asked in most meetings.
Are there particular disclosure requirements that you will be most focused on this year?
Newcom: Our ESG disclosures will continue to be a focus in the coming year. In June 2021, Equinix became the first in the data center industry to commit to being climate neutral by 2030, backed by science-based targets, an aggressive green financing plan, and a comprehensive sustainability agenda. Starting in 2022, we are holding our broader leadership team financially accountable for achieving our environmental and diversity objectives by implementing a modifier to our short-term incentives for VP-level employees and above, including executive officers.
Burke: We currently discuss human capital, climate change, and environmental stewardship in our 10-K and sustainability report. However, like others, the team will be focused on enhancing climate-related disclosures per guidance recently provided by the SEC.
Gentry: Our focus on increasing environmental, social, governance, and resilience (ESG+R) and diversity disclosure remains a priority for us this year. LXP has consistently done an excellent job in providing very detailed disclosure with respect to our business operations, and we are staying current with best practices on ESG and sustainability disclosure as well.
Brady: At Federal, we are focused on continuing to enhance our current ESG disclosures. Currently, Federal is disclosing to GRESB, CDP, the Corporate Sustainability Assessment, and through our annual corporate responsibility report. We plan to expand upon these disclosures further this year. Specifically, including more robust disclosures under the Taskforce on Climate Related Financial Disclosures (TCFD) in anticipation of the proposed SEC rule going into effect.
Have you seen an increase in investor activism. If so, how are you responding?
Gentry: Publicly traded companies across the board have certainly seen an increase in activism in recent years, and that has been particularly true in the REIT industry. At LXP, we respond to public engagement with shareholders in much the same way we do private engagement—we seek constructive dialogue with all shareholders to better understand their perspectives.
We believe we meet shareholder expectations by remaining accessible and open-minded to opportunities to enhance shareholder value. That’s what we’re focused on at LXP, and we believe that aligns our interests with those of all shareholders.
Newcom: While Equinix has not been a target of an activist campaign, a few public data center companies have been targets in recent years. To understand and get ahead of shareholder concerns, we proactively engage our investors, including hosting an annual governance roadshow where we offer meetings with our board members to discuss our ESG efforts. In 2021, we reached out to 55%-plus of our ownership, resulting in dialogue with 25%-plus of our ownership ahead of proxy season.
Brady: We have not, but we have seen it in our broader industry. At Federal, we strive to be transparent with our investor base and are laser focused on the maximization of long-term shareholder value—our business plan is based on a combination of balance and growth, and we pride ourselves on our best-in-class governance principals.
Burke: There has been an uptick in recent years across the real estate space. The voices of all stakeholders are important. We recently reset our communications approach in a variety of ways that included more active engagement in general. Communicating to provide an accurate understanding of your company, while also listening to stakeholder views in order to consistently reflect upon them, is that much more important in the current environment.
Has your base of investors shifted at all; which groups are you most focused on?
Gentry: Not surprisingly, as LXP has transformed to an industrial REIT, we’ve seen a shift in our investor base, with active long-only managers becoming a larger percentage of our outstanding shares. In 2021, we began a more proactive communications plan with the index funds, particularly to discuss LXP’s ESG+R efforts. This is an investor group that can be hard to get in front of, but we’re starting to make some positive headway.
Brady: We are always working to diversify and grow our investor base. At Federal, we try to appeal to the broadest array of potential investors. Historically, our investor base has been weighted towards long-term holders. We believe real estate is a long-term business and is best matched with investors that take the same view.
Burke: We continue to see interest across the board. From real estate-focused investors, it tends to be in regard to strategies we are uniquely executing to grow and digitally transform our business. From generalist investors, who are usually less familiar with us, it tends to begin with a newfound appreciation for the self-storage business and the competitive advantages Public Storage has developed over decades as the industry leader. Conversations with both groups are increasingly turning towards the resilient performance of self-storage, and Public Storage in particular, in the face of macro pressures in the past.
Newcom: Our investor base has remained stable over the last several years with index funds, REIT-focused investors, and technology, media, and telecommunications (TMT)-focused investors each representing about a third of our ownership, and relatively limited hedge fund ownership. We continue to focus our investor targeting efforts on asset managers who will be long-term shareholders of the company.
Which methods of communication are most effective for your company’s IR function?
Newcom: Digital tools have been highly effective at scaling Equinix’s IR function. For example, for major corporate announcements such as M&A, we email all our sell-side analysts and top investors a short FAQ. This enables the team to communicate our key messages across a wide audience and then focus our time on a smaller subset of investors or sell-side analysts who have deeper questions.
Brady: We find getting people physically to our properties is our best asset. Real estate is local. You have to understand the demands and needs of the local community to be able to create value at the property level. Federal’s properties and our locations are what differentiate us. There’s no better way for investors to understand the real estate than to physically experience it.
Burke: Revisiting the idea of lasting change, we’ve evolved into a world where it’s really about how you piece all of the methods together. All else equal, in-person interaction continues to be the most effective. However, as stakeholder bases expand, time and geographic constraints remain, and content delivery preferences evolve, we will all be striving for the right mix across channels moving forward.
Gentry: Digital communication, particularly video and social communication, has become more efficient for us to disseminate information quickly. We utilize our website and social media platforms frequently to disclose new information and noteworthy news. While email seems to keep us connected 24 hours a day, nothing beats picking up the phone and having a live conversation with an investor, analyst, or colleague.