Once again, real estate investing is hot. Just to give one example: NATIONAL Capital Markets was recently retained to help bring a multi-family real estate investment trust (“REIT”) IPO to market. The offering was oversubscribed by four-times before private equity swooped in with a 20 per cent premium on top of that, and scooped up the entire portfolio.
There are a lot of reasons for the exuberance: demographic trends, a scarcity of certain product categories (like rental apartments) and the desire for yield in a low interest rate environment. But while real estate has long been one of the best ways to hold and build wealth, that doesn’t mean publicly traded issuers in the real estate sector shouldn’t make the effort to proactively engage with their shareholder base.
For many REITs, however, shareholder outreach is limited to the bare minimum required by securities legislation. They simply don’t see the point of more effort. Their business model appears pretty straightforward—buy and maintain real properties, collect rents and distribute dividends to unit holders. Their high-paying dividends ensure shareholder interest, and the regular financings required to acquire more properties ensure sell-side analyst coverage.
Yet, the sector frequently swings in and out of favour, falling victim to speculation of bond rate increases. In 2013, for example, just one year after the debut of a host of successful REIT offerings including CT REIT, Choice Properties REIT and WPT Industrial REIT on the TSX, a slew of deals were canceled over concerns of a hike in bond rates.
There is a real opportunity for REITs to do a better job of communicating their value proposition in both good and bad times, and sustaining investor interest through all market cycles. By limiting their communications to a quarterly earnings call and the occasional non-deal roadshow, REITs are leaving a significant amount of retail money on the table and missing an opportunity to put some corporate reputational equity in the bank that they can draw on during market downturns.
Here are a few ways issuers can take a more proactive communication approach and help create sustained interest in their stock:
Engage in more thought leadership to ensure your unique REIT story is in the marketplace and explains to the average investor why real estate makes for such an attractive investment. For some REITs, presenting their CEO as a thought leader available to comment on general real estate and market issues has served to increase the profile of the REIT and bolster its reputation.
Investors, particularly retail investors, require frequent updates to keep them engaged with their investments. While it may be efficient to announce all corporate events together in the mandatory quarterly earnings release, you are not benefiting from the incremental value that could be realized by maintaining momentum over time. Also, be aware of the need to amplify the announcements using social media, where investors get more of their news today.
Quarterly conference calls
Holding quarterly conference calls seems obvious but some REITs have been slow to adopt them. Also, it’s important to look at the earnings announcement as an event. It is not just releasing the results, but also holding the call, conducting media outreach, meeting with analysts and conducting a non-deal roadshow.
Real estate is a tactile asset. Investor days can help analysts and institutional investors understand the investment proposition, particularly if it is a new approach. For example, when the Toronto King Street West neighbourhood was being transformed from vacant industrial buildings to trendy office lofts, the REIT responsible for driving this change held an investor day to explain the transformation and its value potential.
The majority of investors get all their investment information online. By keeping your website modern, up-to-date and engaging, while also proactively managing your search engine optimization (SEO), you ensure investors are getting the right information to make investment decisions.
The media landscape can be crowded, but real estate is often a topic for discussion with housing shortages, affordability and environmental concerns all becoming hot discussion points. By proactively engaging with the media, you get the opportunity to both share your knowledge and raise the profile of your company.
In short, real estate may be back, but for how long depends on whether you get your story out there today, tomorrow and over the coming months and years.