NEW YORK CITY—While their outlook on REITs was decidedly bullish, industry luminaries who participated in panel discussions during the annual NYU Schack Institute of Real Estate conference, held earlier this week, challenged several aspects of how companies in the space do business.
Speakers—including one of the industry’s most active players, Nicholas Schorsch, chairman and CEO, American Realty Capital—also talked about just where the industry is in the economic cycle and a big shift in real estate generally that, in particular, will benefit the net-lease arena.
Perhaps surprising attendees, Ventas chairman and CEO Debra Cafaro extolled the virtue of activists. “There are benefits to the concept of activism because it forces you to stay on your toes. If you’re a strong company and you can articulate your mission, you’ll be fine at the end of the day. But I think we should listen to all ideas, even from people with whom we aren’t friends.”
Agreed Michael Kirby, chairman and director of research, Green Street Advisors, “In this space, you have a uniquely educated shareholder pool that acts in the organization’s best interests—shareholders sometimes know more than the board. And I don’t believe an activist can fool us, so I think activism is great. There are some poorly run REITs that need to be cleaned up.”
However, Cafaro cautioned, “At the same time, shareholders don’t run companies and there is a place for executive management.” She also called out the industry for an over-reliance on net asset value in determining just what a REIT is worth. “I think we do ourselves a disservice by our slavish attention to NAVs. We often scare people away with the way we talk about our companies when we should be talking about our dividend growth, our strategy, our opportunity set, etc., in order to attract non-dedicated capital, which is where all the money is today.”
Agreed Ronald Havner Jr., chairman, president and CEO of Public Storage, “I wholeheartedly endorse that. I think NAV is way overdone, there’s far too little focus on cash flow. If you go to finance real estate, you have to pay dividends and debt in cash, so cash is the driver.”
Even Kirby, who spoke earlier of the gains realized by using NAVs said, “It’s a useful tool for benchmarking a healthcare REIT against another healthcare REIT, but it doesn’t come close to telling the whole story of a company.”
He added, “We use NAV for a very focused purpose but a lot of people have started to use it as the beginning and end of a valuation and that’s a mistake.”