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Corrections Corporation of America Message Board

  • RetiredPaperman RetiredPaperman Nov 8, 1999 6:35 PM Flag

    From today's ""

    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?":

    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

    "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'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

    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."

    To be

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    • 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."


      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.

      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

      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

      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."

      • 2 Replies to RetiredPaperman
      • from version)

        Christopher Edmonds; part 2.

        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

        "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."

        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

        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."

      • <EOM>

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