2013 REIT report

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As REIT regimes mature and grow as an investment sector, companies have to continue to identify and implement best practices. This is true for all REITs, from the industry leaders to local operatives.

The real estate investment trust (“REIT”) concept now exists in over 30 countries worldwide1. REITs globally have seen their market cap grow from US$300b in 2003 to just over US$1t as of September 20132.

The REIT concept has become increasingly recognized and accepted as a mainstream investment sector and a route for investors to access high value, illiquid real estate assets.

Four keys to REIT success

There are four key areas of REIT operations that we see as key to long term management success, and we explore them further in our report. They are:

  • Platform effectiveness
  • Capital allocations
  • Transactions
  • Financing
  • Platform effectiveness

    There is no single platform infrastructure that singularly facilitates operations in all situations. Different subsectors of the real estate market require different operational approaches, and given the regulatory and reporting requirements for publicly traded REITs, the platform requirements for these organizations can be unique.

    There are three trends that we think are contributing to better platform and infrastructure effectiveness:

    1. Operational effectiveness — creating a clearly defined and effective organizational structure and implementing processes that result in better quality outputs

    2. Efficiency and cost reduction — improving processes, often through automation, streamlining and/or centralization, so that operations are run in a better and more cost-effective way

    3. Risk management — managing risks throughout the business to mitigate the possibility of unexpected problems or to better position an organization for the unexpected

    When these activities are successfully combined, the result is an effective platform capable of facilitating the many complex aspects of running a major real estate business.

    We believe REITs that increasingly move from an entrepreneurial style of managing their business to a more mature, efficient approach will lead the industry going forward. Efficiency and effectiveness are becoming important differentiators across the sector.

    1 European Public Real Estate Association, http://www.epra.com/regulation-andreporting/taxation/reit-survey/, accessed on 9 September 2013.

    2 SNL financial, http://www.snl.com, accessed on 9 September 2013.