The above is a "pay" site, and well worth the few dollars a month. For those wanting a freebie, below is an article titled "Can you trust the REITs?":
Asked where to lay the blame for the continuing malaise in the real estate sector, both analysts and investors agree that one of the main causes remains self-interest.
"So many REIT managers are used to running the show their way as private companies," says Craig Silvers, head of REIT research at Sutro & Company and a member of THEStreet.com's REIT Roundtable. "Sometimes they just don't think about what evenf the perception of conflicts can do to investor confidence."
How to address that credibility gap was a major concern for the participants in the latest gathering of the Roundtable, which took place during the annual NAREIT Convention in Beverly Hills, Calif. With real estate shares remaining in the red for the year - the SNL Securities Equity REIT Index is down 5.9% year-to-date, and that's after factoring in a hefty 8.5% dividend -- the industry has been groping for ways to end its multiyear slump.
Unfortunately, examples of self-dealing are entirely too easy to find. Robert Steers of Cohen & Steers Capital Management shared with the NAREIT audience a list of two dozen REITs, or real estate investment trust, that have recently completed related-party transactions. These include REITs which bought or sold assets between a company and its officers and/or directors, or companies which extended loans to insiders. These activities undermine confidence in all aspects of a company's operations. There is a credibility gap between how these issues are handled and the way shareholders perceive them," says Steers, adding history is not on REIT's side. "The industry has a poor track record as to how they address these issues."
The lack of credibility results directly in a lack of capital flowing into REITs. "it is in the REITs' long-term economic interest to (eliminate conflicts) and change investor's perceptions," says Nori Gerardo-Lietz, a Detroit-based adviser to institutional investors and pension funds. "If you want to attract broad-based institutional interest in the industry, you have to act like an institution."
Along with the examples cited by Steers, she cites the lack of independence on REIT governing boards and the perceived indifference of REITs toward large, institutional investors. "The cold, hard truth is the composition of REIT boards needs to change to become more diverse, independent and active," she says. "If you want to change the perception that this industry is a specialized subset that attracts only real estate capital, you have to reach out and ge to know what mainstream institutional investors want."
Equally important to buyside investors are the issues of inadequate accounting standards and the lack of reporting and disclosure consistency among REITs. Because real estate depreciation expense distorts traditional net income as calculated under generally accepted accounting principles, or GAAP, REITs' financial health is usually measured by Funds from Operations, or FFO. That measure adds depreciation back to earnings, and excludes capital gains and losses from property sales to provide a better measure of a REIT's operating performance.
Problem is, FFO is not an audited number and, hence, can be "managed" by companies to provide a less-than-candid financial picture. "The problem with FFO is that nobody is sure what it means. It is not especially useful in comparing companies in the sector," says Roundtable member Marc halle of Prudential Real Esate Securities.
NAREIT has been working to standardize FFO reporting and was hoping to establish clear standards for reporting for release at the annual meeting. Instead, the accounting committee only offered a position that nonrecurring expenses should be included in FFO calculations, which falls far short of moving FFO more toward GAAP standards.
That failure is discouraging to both analysts and some REIT executives who feel penalized by the lack of uniformity and accountability in financial standards. "FFO is a meaningless number," says (name didn't print), of Residential Properties Trust (EQR:NYSE). "I'm very disappointed that the REIT industry did not take a step to move closer to GAAP."
Combine the accounting issues with other conflicts and REITs retain their appearance as risky ventures to many outsiders. Says Gerardo-Lietz, "If REITS want to be in corporate America, they need to look like it."
Members of the TSC REIT Roundtable believe that a combination of tax-loss selling, continued outflows from REIT dedicated mutual funds and the unwinding of UIT's will put pressure on the prices of REITs between now and the end of the year. "They are sources of supply, "says Ritson Ferguson of CRA Real Estate Securities. "That's enough to keep a lid on prices."
"There is no spark in the short term for REITs," says Craig Silvers, head of REIT research at Sutro & Company and a member of the Roundtable. "There is no reason to own these stocks before January."
However, the panel is mised on the outlook into the new year. "We know we'll get an 8% dividend," Ferguson says. He predicts REITs should appreciate about 8% for a 16% total return through June.
At the low end of the spectrum is Carl Tash of Cliffwood Partners, who says the total return between now and next June will be in the low single digits. "We may be up only 2-3% between now and June," he says. "We are just in the wrong part of the economic cycle for real estate stocks to move."
Favorite picks from the Roundtable include: LRY, PPS, MHX, FR, ESS, SRW.
All Roundtable members were negative on the short-term prospects for the hotel sector. Silvers summed it up best: "If the sector is this weak in a strong economy, wait until a downturn. They may look cheap now, but just wait."
The overall mood of the Roundtable may have been best summed up by Parthenon's Grissett. "if you invest between now and June, don't buy these things," he says. "If you're investing for the next three-plus years, it's more risky to be short than long."