How to Sell Your Real Estate Note

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Chicago, IL August 14, 2004 — FPL Associates Consulting and The National Association of Real Estate Investment Trustsโ€š (NAREIT) announced the results of the 2003 NAREIT Benchmark Survey. The comprehensive report, conducted by FPL Associates Consulting, is designed to provide real estate investment trusts (REITs), real estate operating companies (REOCs) and other real estate industry participants with information and trends regarding a variety of key business practices.

The 2003 NAREIT Benchmark Survey is the first effort to date to benchmark and evaluate these key functions in the real estate industry. The results provide notable data for an industry seeking to maximize operating performance.

We see that the real estate industry is continuing to mature. Publicly traded companies in particular are acquiring many characteristics of other industries, especially with regard to developing effective and cost-efficient business practices, said Stephen Stoner, Managing Director for FPL Associates Consulting. REITs and REOCs are in most respects increasingly indistinguishable from other leading U.S. Corporations.

NAREIT President CEO Steven A. Wechsler, said We are pleased that so many NAREIT members participated in last years inaugural Benchmark Survey. We believe that the Surveys findings will provide significant data that can be used by other real estate organizations in a variety of areas.

Benchmark Survey

73 NAREIT members with combined equity market capitalization of over $125 billion responded to the survey. Industry sectors represented included office, mall, industrial, apartment, shopping center, as well as other REITs and REOCs. Respondents filled out a 34-page questionnaire divided into a section for each of the six business practices; corporate governance, investor relations, lease administration, tenant relations, information technology and marketing and leasing. Survey responses were grouped by number of employees, market capitalization and industry sector. The full report analyzes the results of each question in the survey.

Corporate Governance

A few years ago corporate governance was a seldom-used phrase. In 2003, it ranked third as an acknowledgeable duty of REIT boards after strategy and financial performance. The dominant trend shown by respondents is the rush toward formal structure. Many publicly traded REITs were, until recently, private companies in private hands. Public ownership brought reduced cost of capital, and along with it, the need for transparency. The attention towards adopting broader market practices has increased, making formal governance structure and independent board composition a definite priority among larger REITs, faster than their smaller counterparts.

Investor Relations

Investor relations have seen several key trends emerge. According to the survey responses, more information is being released on corporate governance, web sites are being expanded as an interactive tool, the emergence of individual investors as an investor class worthy of separate attention is on the rise and outsourcing the investor relations function is gaining acceptance.

Corporate governance information has become a popular addition to corporate web sites to not only communicate more efficiently, but to combat the recent increase of accounting scandals. And while one in four respondents conducts most of its investor relations communication through its web site, the effort going into these sites is phenomenal.

Outsourcing of important investor relations functions has also become increasingly prevalent, with 85% of all REITs outsourcing some portion of the function.

To handle the investor relations flow of communication, most functions seem to report to the board through the CFO, rather than directly. This appears to be stable, with 90% of REITs reporting satisfaction with their current reporting structure for investor relations.

Lease Administration

Despite the cumbersome maintenance of lease data and its interface with accounting systems, REITs have approached it in varying ways, thus, becoming more specialized and centralized. Most often grouped with leasing, accounting, or asset management, the majority of REITs have dedicated personnel to handle the functions. Two-thirds use full-time employees and handle lease administration in regional or national facilities. Apartment REITs were a notable exception, operating this function at the property level or complex level.

This labor-intense, mission-critical area continues to emerge. Half of all REITs have changed their lease administration techniques in the last two years, indicating that systems are definitely evolving.

Tenant Relations

Tenant relations remain the low-tech section of REIT operations. Internet adoption has been the slowest in this area, possibly because of the tenant and building diversity. Only 40% of respondents provide secure web environments for communication. Though email and Internet communication may be faster or cheaper, respondents still prefer phone or face-to-face meetings.

It is evident that owners are concerned with tenant perceptions. Almost 70% of owners send surveys to their tenants on a regular basis. When respondents were divided by size and industry sector, other distinctions emerged. More than 90% of office REITs send surveys to tenants, though only 44% use them to track tenant satisfaction. Larger REITs have more national tenants, and 55% of them deal with these tenants through a single point of contact.

Linking tenant satisfaction to employee performance metrics is still infrequent, but appears to be an emerging trend.

Information Technology

Taking into consideration the previous business practices, much of the change has stemmed from the trends of various attitudes toward technology, and degrees of adoption, which varied significantly by asset type and size. It was apparent that retail REITs (both shopping centers and malls) are increasing spending, attempting to reach the ultimate customer (the consumer, not the tenant) and to monitor the many businesses operating under their roofs. However, in other property types, spending is flat. Apartment REITs have cut spending, perhaps reflecting mature technology.

Despite the steady balance of enterprise technology alternatives for real estate other than the leader, JD Edwards, there continues to be a low level of satisfaction with software solutions and inconsistent technology training across the industry. In general, mid-size firms are happiest with technology and the smallest and largest are struggling to be consistent in adopting new technology solutions.

Marketing and Leasing

While REITs have discussed company-wide strategy for years, only now are we seeing the first applications of strategy in the marketing and leasing area, which is reflected in leasing plans and treatment of national tenants. Yet, other decisions remain at the property level, and are less under control of the centralized organization. It is apparent that the largest organizations invest in technology to communicate company strategy all the way to the field personnel.

Though most organizations market to national tenants, there is no clear consensus to measure the benefits of national tenant relationships such as interchangeable space, shorter lease negotiation and efficiency in planning, other than being tracked and managed centrally.

These practices are definite trends that will help the industry to conduct business in a more productive manner than in the past, said Stephen Stoner. Real estate companies will become more homogeneous in how they approach various business activities and will develop a best-practices orientation. This survey is one of the early steps in this evaluation.

The full results of the comprehensive report will be released to survey participants and can be purchased by the public on the NAREIT website at www.nareit.com. For questions regarding the contents of the 2003 NAREIT Benchmark Survey, call FPL Associates at 312.368.5040.

About NAREIT

NAREIT provides representation before national and state policymakers affecting the U.S. REIT and publicly traded real estate industry. It is a voice for the publicly traded real estate industry with the financial media and the investment marketplace. It provides numerous opportunities for U.S. REITs and publicly traded real estate companies to network among themselves and with a variety of service providers in the real estate industry and participation on any NAREIT sponsored committees. Members are U.S. real estate investment trusts (REITs) and other businesses that own, operate and finance income-producing real estate, as well as those firms and individuals who advise, study and service these businesses. Committees include: Accounting, Government Relations, Insurance, and Investor Relations.

About FPL Advisory Group, Associates Consulting Division

FPL Associates Consulting provides strategic planning, organizational design, and process improvement to clients in the real estate industry. The firms professionals work from five U.S. offices: Chicago, Los Angeles, San Francisco, New York, and Dallas. Our professionals have real estate backgrounds and extensive experience as practitioners representing a broad array of functional expertise. FPLs clients span the breadth of the real estate industry and include public and private companies.br
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