Global real estate investment trusts : people, process and management

324 Pages·2012·6.167 MB·English

by  David Parker, professor

As real estate investment trusts continue to grow exponentially
in Asia and Europe – being already well established in the USA
and Australasia – a comprehensive guide to the issues involved in
REIT property investment decision making is badly needed.
This book draws together the most recent developments in REIT
management from academic research and professional practice. It is
based on current, original academic research, including structured
interviews with the managers of a wide range of different types of REITs
as well as the research and publications of others, together with the author’s
25 years experience in REIT management. It provides a theoretically robust and
practically relevant up to date guide to the property investment decision making process for REITs.
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Presenting new insights, the author breaks the REIT property investment decision making process n
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down into three phases, each comprising six stages with 30 sequential steps. Each chapter focuses
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on one stage of the property investment decision making process and introduces the key people
in the REIT management team relevant to the activities in that chapter. The theory and principles eb
are considered and illustrated by application to Super REIT, a $15bn diversified REIT. sa
Global Real Estate Investment Trusts: People, Process and Management fuses not only how REITs tl
should undertake property investment decision making - based on how it is undertaken and the m
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underlying property theory, capital market theory and finance theory - but also why each part of
the decision making process is important. ee
This book provides the first sole-authored scholarly work specifically on REITs as a business na
enterprise and REIT property investment decision making as an holistic and cyclical process.
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The focus is on principles, making it relevant in each of the four major REIT markets around the

world: USA, Europe, Asia and Australasia. TE
An essential book for REIT managers and all those practising professionals involved in the REIT rs
industry – including property practitioners, researchers, lawyers, accountants, bankers and ut
directors around the world. a
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About the author s

Professor David Parker (www.davidparker.com.au) is an internationally recognised expert on
Global Real Estate
both the theory and practice of REITs, being a consultant to the REIT industry internationally.
He is Professor of Property at the University of South Australia, an Acting Commissioner of the
NSW Land and Environment Court and a REIT director, adviser, author and expert witness. P
a
Investment Trusts
Other books of interest r
Global Property Investment: strategies, structures, decisions k
Baum & Hartzell e
HB: 9781444361957; PB: 9781444335286 r
people, process and management
Property Investment Appraisal, 3rd edition
Baum & Crosby
9781405135559
Property Valuation
Wyatt
David Parker
9781405130455
Cover design by Meaden Creative
Cover image ©Nitesh Kesarwani (Dreamstime.com)
ISBN 978-1-4051-8722-0
9 781405 187220
parker_9781405187220_hb.indd 1 20/10/11 10:43:18
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Global Real Estate
Investment Trusts

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To my wife and our twin teenagers.
May the future with Susan, Elliot and Victoria
recompense for that foregone.

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Global Real Estate
Investment Trusts
People, Process and Management
David Parker
Professor of Property
University of South Australia

A John Wiley & Sons, Ltd., Publication
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This edition fi rst published 2011
© 2011 David Parker
Blackwell Publishing was acquired by John Wiley & Sons in February 2007. Blackwell’s
publishing programme has been merged with Wiley’s global Scientifi c, Technical, and
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The right of the author to be identifi ed as the author of this work has been asserted
in accordance with the UK Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this publication may be reproduced, stored in a
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Designs and Patents Act 1988, without the prior permission of the publisher.
Designations used by companies to distinguish their products are often claimed as
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First edition published by Blackwell Publishing 2008
Library of Congress Cataloging-in-Publication Data
Parker, David, professor.
Global real estate investment trusts : people, process and management /
David Parker. – 1st ed.
p. cm.
Includes bibliographical references and index.
ISBN 978-1-4051-8722-0 (hardback)
1. Real estate inves tment trusts–Management. I. Title.
HG5095.P37 2012
332.63′247068–dc23
2011035003
A catalogue record for this book is available from the British Library.
This book is published in the following electronic formats: ePDF 9781444398793;
ePub 9781444398809; oBook [ISBN]
Set in 10/13pt Trump Mediaeval by SPi Publisher Services, Pondicherry, India
1 2011
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Contents
About the Author xi
Foreword xiii
Preface xv
Acknowledgments xvii
Introduction xix
1 Envisioning 1
1.1 People and process 4
1.1.1 People 4
1.1.2 Process 7
1.1.3 People and process 11
1.2 REITs: an introduction 11
1.2.1 Transparency in governance 12
1.2.2 REIT models 13
1.2.3 REITs: summary 13
1.3 Preparing Phase 13
1.4 Envisioning Stage 14
1.5 People 16
1.5.1 Governing Entity 17
1.5.2 Chief Executive Officer (CEO) 19
1.5.3 Chief Financial Officer (CFO) 21
1.5.4 Support Teams 22
1.5.5 Fund Management Team 23
1.5.6 People 24
1.6 Vision 24
1.7 Style 26
1.7.1 Active vs. passive 27
1.7.2 Top down vs. bottom up 28
1.7.3 Value vs. growth 28
1.7.4 Core, value added and opportunistic 29
1.7 .5 Style 30
1.8 Goals 30
1.9 Strategic Plan 32
1.9.1 Strategic models 32
1.9.2 Strategic planning process 33
1.9.3 Strategic Plan 35
1.10 Objectives 35
1.11 Super REIT 36
1.12 Summary 38
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vi Contents
1.13 Key points 39
References 41
2 Planning 43
2.1 People 44
2.1.1 Portfolio Management Team 44
2.1.2 Strategy Team 46
2.1.3 Research Team 46
2.2 Property Portfolio Strategy 48
2.2.1 Targeting risk-return performance 48
2.2.2 Properties vs. portfolios 51
2.2.3 New vs. existing portfolios 53
2.2.4 Iterative process 55
2.2.5 Property Portfolio Strategy 56
2.3 Strategic Asset Allocation 59
2.3.1 Modern portfolio theory 61
2.3.2 Capital market theory and the Capital Asset
Pricing Model 65
2.3.3 Strategic Asset Allocation 68
2.4 Tactical Asset Allocation 69
2.4.1 Spatial based approaches 71
2.4.2 Style based approaches 72
2.4.3 Other approaches 73
2.4.4 Tactical Asset Allocation 75
2.5 Stock Selection 75
2.5.1 Generic criteria 76
2.5.2 Specifi c criteria 77
2.5.3 Stock Selection 80
2.6 Asset Identifi cation 80
2.6.1 Market efficiency 81
2.6.2 Information processing 84
2.6.3 Asset Identifi cation 91
2.7 Super REIT 91
2.8 Preparing Phase 93
2.9 Summa ry 93
2.10 Key points 95
References 96
3 Dealing 99
3.1 People 101
3.1.1 Capital Transactions Team 101
3.2 Preliminary Negotiation 102
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Contents vii
3.3 Preliminary Analysis 104
3.3.1 Qualitative Preliminary Analysis 105
3.3.2 Quantitative Preliminary Analysis 105
3.3.3 Preliminary Analysis 109
3.4 Structuring 109
3.4.1 Structuring the commercial transaction 110
3.4.2 Structuring the funding transaction 112
3.4.3 Documenting the proposed transaction 114
3.5 Advanced Financial Analysis 115
3.5.1 Target rate of return 117
3.5.2 Theoretical basis of mis-pricing 122
3.5.3 Pricing models 124
3.5.4 Decision rule 130
3.5.5 Advanced Financial Analysis 133
3.6 Portfolio Impact Assessment 133
3.6.1 Risk-return balance 133
3.6.2 Portfolio metrics 134
3.6.3 Short form documentation 135
3.6.4 Portfolio Impact Assessment Step 135
3.7 Super REIT 135
3.7.1 Preliminary Negotiation 136
3.7.2 Preliminary Analysis 137
3.7.3 Structuring 140
3.7.4 Advanced Financial Analysis 140
3.7.5 Portfolio Impact Assessment 152
3.7.6 Outcomes of implementing the
Dealing Stage 153
3.8 Summary 155
3.9 Key points 156
References 158
4 Executing 159
4.1 People 161
4.1.1 Investor Interface Team 162
4.2 Go vernance Decision 163
4.2.1 Delegation of authority 163
4.2.2 Information required by decision maker 164
4.2.3 Governance Decision 169
4.3 Transaction Closure 169
4.3.1 Commercial Transaction Closure 169
4.3.2 Funding Transaction Closure 170
4.3.3 Transaction Closure 170
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viii Contents
4.4 Documentation 171
4.4.1 Negotiation of Documentation 171
4.4.2 Sign-offs 174
4.4.3 Execution and exchange 175
4.4.4 Documentation 175
4.5 Due Diligence 176
4.5.1 Fiduciary duty 177
4.5.2 Operationalising Due Diligence 177
4.5.3 Due Diligence 180
4.6 Independent Appraisal 180
4.6.1 Requirement for appraisal 181
4.6.2 Appraisal issues 182
4.6.3 Appraiser appointment 185
4.6.4 Appraiser instruction 186
4.6.5 Appraisal report 187
4.6.6 Independent Appraisal 188
4.7 Transacting Phase 188
4.8 Super REIT 189
4.8.1 Governance Decision 190
4.8.2 Transaction Closure 190
4.8.3 Documentation 190
4.8.4 Due Diligence 191
4.8.5 Independent Appraisal 191
4.8.6 Outcomes of implementing the Executing Stage 192
4.9 Summary 192
4.10 Key points 193
References 195
5 Watching 197
5.1 People 199
5.1.1 Compliance and Risk Management Team 200
5.2 Settlement 201
5.2.1 Settlement check list 202
5.2.2 Asset management plan 203
5.2.3 S ettlement 203
5.3 Post Audit 204
5.3.1 Timing 204
5.3.2 Basis 205
5.3.3 Learning process 205
5.3.4 Post Audit 206
5.4 Performance Monitoring 207
5.4.1 Planning 207
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