A general session discussion during Nareit’s REITworks: 2020 Virtual Conference held Sept. 21-22 examined best practices for boards to follow as they navigate the current uncertain market conditions.
Keith Townsend, partner at King & Spalding, moderated the panel, which included: Cedrik Lachance, EVP and director of global REIT research at Green Street; Walter Rakowich, former CEO of Prologis, Inc. (NYSE: PLD) and a REIT board member; and Constance Moore, former CEO of BRE Properties and also a REIT board member.
The panel looked at ways in which boards should be helping management teams cope with the changed business environment.
“Boards should be extremely engaged right now,” Lachance said. The key issue, he said, is for boards to try to understand if the current disruption will have a lasting impact, and how to position the company accordingly. “A lot of boards have to adjust how they think about the next few years,” he said.
As for balance sheet management, Moore said the issue became a “huge conversation” at the start of the pandemic. Now the conversation has shifted to look at issues such as whether to continue to hold onto cash, the safety of the dividend, and the development pipeline.
On the subject of the dividend, Moore said that at Columbia Property Trust, Inc. (NYSE: CXP), where she sits on the board, “we know how important it is for investors, but it’s really important to maintain liquidity.”
Lachance stressed that for Green Street, there is “no shame” if a REIT opts to pay the minimum dividend payout level. “In times of crisis it’s important to use that source of liquidity, if it’s available,” he said. Rakowich added that in a crisis, “liquidity is king.”
Meanwhile, Rakowich said that if any silver lining is to emerge from the pandemic it is that the crisis is accentuating critical changes that will make companies stronger. Moore agreed, saying the crisis has forced conversations that wouldn’t have happened before. “We’ll ultimately be stronger, but it’s painful going through it,” she said.
As for the board’s role in setting corporate culture, Moore noted that “culture is something we talk about at every board meeting and topics around culture have expanded.” Rakowich added that the focus on social issues is not as easy to tackle as financial issues but is equally important.
On the issue of how boards might have changed as a result of the pandemic, Rakowich noted that boards are “learning to manage a little bit more with a heart,” and have become more aware of the personal challenges faced by employees.
Lachance added that the crisis is going to force a rethinking of what skill sets are most important within an organization. “That evolution is taking place really quickly in the minds of board members and investors, and how to define the right skill set going forward is going to change quite a bit based on what we witnessed over the last six months,” he said.