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July 2, 2012
Message from the President
 NAREIT has maintained an active Investor Outreach program in the first half of 2012. As the story below reports, through June 30, our Investor Outreach staff has taken the REIT story to the retirement plan marketplace in more than 200 direct meetings with investment decision makers at the largest retirement plans, consultants and investment management firms.
The retirement investment marketplace is composed of three main elements: defined benefit plans, including public and corporate pension funds and endowments; defined contribution plans, including 401(k) plans; and individual retirement accounts (IRAs). Each of these segments comprises approximately one-third of a total $15 trillion in invested retirement assets in the United States.
In the defined benefit segment, NAREIT has positioned itself as a resource for pension plan investors, making its research and the expertise of its staff available to assist them in determining the most effective ways to use REITs in their portfolios. For example, we have taken research on the correlations of REITs with other assets to members of this audience, as well as analyses of the long-term performance of REITs relative to private real estate and the inflation-hedging benefits of REITs.
This approach has helped our Investor Outreach team build ongoing relationships with investment managers at major institutions, such as CalPERS, CalSTRS, the Teacher Retirement System of Texas and the Los Angeles Fire and Police Pension System.
The combination of providing significant, credible research, staff expertise and a relationship-oriented approach has helped to boost REIT investment in the defined benefit plan marketplace. A recent survey of public sector pension plans by the data collection firm Preqin showed 42 percent of the respondents invest in or intend to invest in listed real estate.
In the next two issues of NewsBrief, we will review the approaches we are using to communicate the benefits of the REIT investment proposition to the defined contribution and IRA segments of this large and important market for REIT investment.
Steven A. Wechsler
President and CEO
First Half of 2012 Productive for Investor Outreach
During the first six months of 2012, NAREIT conducted 222 meetings with many of the largest and most influential investment organizations within the institutional investment marketplace. Collectively, these entities represent more than $30 trillion in assets under management or advisement.
The 222 meetings were held with organizations across all targeted investment cohorts, including:
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44 with prominent domestic and international pension, retirement, and sovereign wealth fund plan sponsors representing more than $718 billion in assets.
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26 with investment consultants with assets under advisement of more than $10 trillion.
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130 with investment managers representing close to $20 trillion of assets under management and sponsoring global and domestic products for the institutional and retail investor markets.
NAREIT was also active on the institutional investment conference circuit during the first six months of the year, participating in 19 events and speaking at eight. To provide perspective, during the same time period in 2011, NAREIT participated in 18 such conferences.
In outreach meetings with defined benefit pension plan sponsors and investment consultants, NAREIT continues to make progress in communicating the benefits of REITs within real estate investment portfolios. Highlighting findings from internal and sponsored research on topics tailored to meet the needs of pension investors, NAREIT delivers a perspective on the role of REITs in managing risk within the real estate portfolio, how investors can optimally allocate investment capital across the real estate investment class in order to best meet portfolio goals and the dimensions of diversification.
In addition to reaching pension plan investors directly through individual meetings with pension board trustees and investment staffs, NAREIT has expanded its conference agenda to include membership and participation in a number of national and state associations representing the interests of public sector pension and retirement plans. NAREIT has also become a visible thought leader in advocating and promoting the merits of the REIT approach to real estate investing through these channels. By way of example, NAREIT was asked to deliver a presentation during an educational session at the National Conference for Public Employees Retirement Systems' (NCPERS) annual conference. NCPERS is the largest national, non-profit public pension organization dedicated to advocacy, research and education. NCPERS' current membership exceeds 500 public pension systems with aggregate assets of approximately $3 trillion.
(Contact: Meredith Despins at mdespins@nareit.com)
FASB Reaches Consensus on Proposed Approach for Evaluating Repurchase Agreements
 On June 27, NAREIT observed a meeting of the Financial Accounting Standards Board (FASB) that focused on repurchase agreements and similar transactions. NAREIT member companies operating as mortgage REITs will be particularly interested in the board's decision, given the prevalent use of repurchase agreements as a source of financing in this sector.
The board discussed the application of the financial assets derecognition model to a subset of repurchase agreements. The board tentatively agreed on a proposed approach that would eliminate existing criteria for assessing effective control for repurchase agreements. In its place, the FASB elected to specify the types of repurchase agreements that should be accounted for as secured borrowings or sales. In reaching this conclusion, the board removed the need to evaluate repurchase agreements under the effective control, continuing involvement, or risks-and-rewards concepts. The transactions that are subject to the board's decision include "plain-vanilla" repurchase agreements, repurchase before maturity agreements, and repo-to-maturity agreements.
The FASB intends on issuing an exposure draft during the third quarter of 2012. The Board has not established an effective date for the proposed guidance. Once the Board issues the exposure draft, NAREIT will establish a task force to evaluate the proposal and consider whether NAREIT should comment on the exposure draft.
(Contact: Christopher Drula at cdrula@nareit.com)
REIT.com Videos
 Declines in both the housing market and financial assets have created substantial opportunities in the residential mortgage arena, according to Michael Commaroto, CEO of Apollo Residential Mortgage (NYSE: AMTG). The residential mortgage sector has been one of the top performing sectors in the first half of 2012. Commaroto said he attributes that performance to both book value growth and dividend yield. "Both of those are really driven by the fundamentals of the industry, and the fundamentals that are really driving it are asset selection, both on the agency side of the business and non-agency side of the business," he said.
 REITs have become a preferred way to invest in commercial real estate thanks to their liquidity, returns, professional management teams and access to capital, according to Glenn Mueller, professor at the University of Denver. Mueller is currently researching volatility in the REIT market. He said his work has shown that the increasing volatility has resulted from REITs' inclusion in exchange traded funds and their corresponding derivatives. He noted that volatility has gone up "a great deal" across the entire stock market over time. As the global economy continues to recover at a slower than expected pace, Mueller advised REIT management teams to ignore quarter-to-quarter performance and fluctuations and take a long-term perspective when it comes to planning. Most importantly, they should assemble a "good quality portfolio that is going to provide long-term income increases and value increases," according to Mueller.
 The United States currently has some of the best market conditions in the world for commercial real estate, according to Trevor Bond, president and CEO of W.P. Carey and Co. LLC (NYSE: WPC). "Interestingly, the U.S. seems to have won the battle of the uglies," Bond said. "We have our problems, but by and large, the U.S. is doing well relative to the rest of the world now." He said employment is starting to grow slowly, and added that the U.S. is still a "manufacturing powerhouse." In terms of other markets, Bond said the company has been cautious in taking first steps in volatile markets. While Brazil and India have been favorites of investors for years, W.P. Carey has been careful when it comes to investing there, according to Bond.
(Contact: Matt Bechard at mbechard@nareit.com)
FASB Issues Disclosures about Liquidity and Interest Rate Risk Proposal for Public Comment
On June 27, the FASB issued its proposal for public comment on a measure that would require additional disclosures about liquidity and interest rate risk. Both equity and mortgage REITs will be interested in the proposal, which would add additional disclosure requirements to financial statements.
The proposed liquidity risk disclosures would require companies to disclose information about the risk that companies would encounter difficulties when meeting their financial obligations. The liquidity risk disclosures would apply to all public, private, and not-for-profit organizations. However, the nature of the disclosures would depend on whether companies are considered financial institutions. The term "financial institution" refers to entities or reportable segments for which the primary business activity is to either:
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Earn, as a primary source of income, the difference between interest income generated by earning assets and interest paid on borrowed funds;
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Or provide insurance.
The proposed interest rate risk disclosures would apply only to financial institutions and would require disclosures about the exposure of financial assets and financial liabilities to fluctuations in interest rates. If mortgage REITs meet the definition of a financial institution, they would be required to comply with the interest rate risk disclosures.
The FASB intends on establishing an effective date for the proposal after considering the feedback it receives from constituents. If you are interested in joining a task force that will evaluate the proposal and consider whether NAREIT should comment on the exposure draft, contact Christopher Drula at cdrula@nareit.com by July 15. The comment letter deadline is September 25.
(Contact: Christopher Drula at cdrula@nareit.com)
NAREIT Joins in Amicus Brief
NAREIT joined other real estate industry organizations in filing an amicus curiae brief on June 15 in the Supreme Court of Texas.
The case in question involves a lease dispute between hotel operators in Texas. NAREIT was joined in filing the bill by the Commercial Real Estate Development Association, the National Multi Housing Council, the American Hotel & Lodging Association and The Real Estate Roundtable.
(Contact: Victoria Rostow at vrostow@nareit.com)
NAREIT Participates in Discussion of IVSC Project Investment Property
 On June 26, George Yungmann, NAREIT's senior vice president for financial standards, participated in a meeting of the International Valuation Standards Council (IVSC) Investment Property Project Working Group in London. Working group members from around the world include representatives from valuation firms, lenders, real estate companies, accounting firms and real estate industry groups, including the Real Estate Property Association of Canada (RealPAC), the European Public Real Estate Association (EPRA) and NAREIT.
The group's discussion focused on issues to be addressed in the development of a global standard that would guide the valuation of investment property. The group agreed that the standard should support valuations broadly and not simply support valuations for financial reporting purposes. Significant discussion focused on disclosures that would provide an understanding of the valuation process and critical assumptions underlying the valuations. The discussion raised questions regarding the classification of valuations as either Level Two or Level Three in the financial reporting hierarchy.
The group agreed that the standard would describe the characteristics of these valuation levels. The group also focused on the valuer's role in apportioning the aggregate value of investment property among land, buildings and identifiable intangible assets.
(Contact: George Yungmann at gyungmann@nareit.com)
NAREIT Participates in Morningstar Conference
 NAREIT participated in the Morningstar Investment Conference at McCormick Place in Chicago last week. Participation in this conference is a component of NAREIT's Investor Outreach program focused on promoting REIT investment to the retail investor marketplace through financial intermediaries such as family wealth offices, registered investment advisors (RIAs) and financial planners.
Financial intermediaries have significant influence over the $5.3 trillion assets in individual retirement accounts (IRAs) in the U.S., representing approximately 33 percent of the overall $15 trillion retirement savings market. Because of the size, scope, diversity and fragmentation of its many audiences, reaching this investor cohort can be especially challenging.
The Morningstar event is the largest of its kind, attracting over 1,800 financial advisors, RIAs, investment management firms, financial publishers and software developers. It provides NAREIT with an opportunity to inform and educate the financial advisor and RIA attendees on the benefits of REIT investment. The event also provides the opportunity to develop stronger relationships with many of the participating investment firms with which NAREIT maintains a regular dialogue through its direct meeting program, including BlackRock, CBRE Clarion Securities, Natixis, PIMCO and Schwab.
(Contact: Abby McCarthy at amccarthy@nareit.com)
NAREIT Joins Coalition Backing ACCESS Act
 In testimony submitted to the House Judiciary Committee last week, NAREIT and a coalition of industry groups expressed their support for the ADA Compliance for Customer Entry to Stores and Services (ACCESS) Act.
The groups noted that a "cottage industry" has developed around the Americans with Disabilities Act of 1990 (ADA), as "unscrupulous attorneys" file lawsuits against property owners for easily correctable ADA violations with no advance warning.
"This proposal would take a meaningful first step in correcting an area of the law that has become a focus of abuse for opportunistic trial lawyers, by ensuring that the owners and operators of public accommodations can address identified access violations before they face litigation," the groups said.
(Contact: Kirk Freeman at kfreeman@nareit.com)
Inland's Wagner Testifies on e-Fairness
Dan Wagner, Inland Real Estate Group's vice president for governmental affairs, testified last week at a U.S. Chamber of Commerce hearing on e-fairness. "We believe that there will always be a place for brick-and-mortar retail and we would like to have the ability to compete with remote sellers on an even playing field without the price distortions created by the current sales tax policy," Wagner said.
(Contact: Dara Bernstein at dbernstein@nareit.com)
NewsBrief Will Not Publish Next Week
NewBrief will not publish next week. The next issue of NewsBrief will be published on Monday, July 16.
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