As co-portfolio managerfor the real estate secu- rities group at Neuberger Berman, Brian Jones talks to companies in which the firm is considering investing. These include REITsand the questions he has for them go far beyond earnings forecast and operating fundamentals.
He wants to know, for example, is there separationbetween the CEO and chairman’s role. Also, what isthe alignment of compensation to total shareholderreturns. “Senior management compensation shouldbe closely tied to absolute total shareholder returnsand shareholder returns relative to appropriate compensation,” he says.
There’s more. He wants to know the length of service for the board members and their compensation.Most important of all, he looks to see if the REIT hasopted out of the anti-takeover defenses in the MarylandUnsolicited Takeover Act.
All of these issues, of course, speak to the company’sgovernance and while they may seem arcane and irrelevant to judging a REIT’s investment profile, they aredecidedly not. “We often speak to REITs about governance issues and it is something that is important to us,”Jones says. REITs that have superior governance practices tend to trade at higher multiples, he says.
The Rise of ESG
Good governance is part of a larger movement amonginvestors, namely an emphasis on environmental,social and governance issues. Granted, it may not havethe same allure as policies that focus on the environment or programs that emphasize a company’s socialinitiatives, but it is part of the package that is becom
Investors are intrigued by thebusiness case that ESG delivers.
This mindset is making its wayinto the CRE community.
BY ERIKA MORPHY
ESG PutsIts Stampon CRE