Green Street Advisors

 

 

Ernst & Young: Global Perspectives - 2016 REIT Report

According to Ernst & Young: REITs have become an increasingly popular vehicle for real estate ownership. Global market capitalization now stands at approximately US$1.7t, up from US$734b in 2010. Since 2010, the US REIT market has grown by almost 150%, while the market capitalization of non-US REITs has more than doubled in United States dollars (USD) terms.

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Green Street Advisors highlights how companies with good corporate governance should, and do, trade at valuation premiums relative to companies with poor governance. Much has been done over the last decade to improve  corporate governance, including dismantling of takeover defenses and near universal adoption of the destaggered  board structure. However, Green Street Advisors’ annual corporate governance assessment still shows the average REIT falls well short of best in class (see Figure 2).13 Green Street Advisors highlights three key areas of corporate governance for REITs:

A sound and well-structured board:  This includes 1) the composition of the board (enough accountable independent directors), 2) the ability for investors to hold the board accountable annually (an entire board should be up for election every year and there should be no way to change this annual voting measure without prior shareholder consent), 3) proxy access and 4) a track record of shareholder-friendly actions.

Minimal anti-takeover weapons: Shareholder-friendly REITs tend not to have shareholder rights plans to maintain minimal ownership limits and to opt out of state anti-takeover provisions.

No conflicts of interest: There are no conflicts of interest, especially in regard to business dealings with management.  

“ A sound set of corporate governance principles sets the stage for healthy interactions between  shareholders and management.” — Cedrik Lachance, Managing Director and Director of US REIT Research at Green Street Advisors.

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To view the full report from Ernst & Young, click here.