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National   /   January 15, 2021

Paul Bubny
By: Paul Bubny

REIT Boards Rethink Strategies and Business Models

The “tale of two cities” effect of 2020 was nowhere more evident than in the REIT sector. For a few sectors, notably industrial, the pandemic and related shutdown practically constituted a golden age, while for others, the daily reality was “silent streets, offices, shops, theaters and airports, and huge market dislocations, from which the world continues to slowly emerge,” as law firm Wachtell, Lipton, Rosen & Katz puts it.

“Many REITs are well-positioned for strong recovery and growth as the pandemic slowly recedes,” the firm says in a memo.  “At the same time, REITs have learned important lessons from the seismic shifts experienced in 2020, some of which may require rethinking strategic plans and business models.”

Here are a few of the issues REIT boards will face as 2021 gets underway:

• Post-Pandemic Opportunities.  “As the pandemic fades, one of the tougher questions, particularly for the stronger REITs, will be how and when to go on offense, whether that means dusting off pre-COVID deals or deal-plans (in many cases with adjustments to price or exchange ratio, asset mix, personnel or other factors), new M&A ideas, levering up, share-buybacks, going private, shedding non-core assets or other strategic transactions.”

• The Role of REITs in a Digital Society. “Every traditional business enterprise, including REITs, has to ask itself how it will fit in in the rapidly digitizing economy,” says Wachtell Lipton.  “Whether it’s e-commerce, remote working, telemedicine, telelearning, drones, self-driving cars, the app-ification of everything, or any of the other trends accelerated by Covid, real estate will never be the same.”

• Activism. “COVID brought out activists, in the REIT world and beyond, in record numbers, sometimes just parking money in cheap stocks, but often seeking some kind of change or representation on boards in response to perceived underperformance,” according to the Wachtell Lipton memo. “Managing proactively and reactively for activism is now a core part of the REIT landscape.”

Other issues highlighted in the Wachtell Lipton memo include ESG, board best practices, M&A custom and practice, shareholder engagement. proxy contests, the financial markets, market checks and other deal technology, litigation and executive compensation.

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Paul Bubny serves as Senior Content Director for Connect Commercial Real Estate, a role to which he brings 13-plus years’ experience covering the commercial real estate industry and 30-plus years in business-to-business journalism.
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