Moody's Cautions on REIT Governance Changes

New leaders are replacing founders at many real estate investment trusts, and this represents a negative for investors, says Moody's Investors Service in a new report on REIT corporate governance.Of 20 leading REITs studied for the report, 15 had replaced founding chief executive officers over the past 10 years, a majority of them with professional managers rather than family members, Moody's said. The rating agency said it generally views family control of a REIT as a credit positive because it "leads to conservative financial policies and decision-making that takes in a longer-term perspective." But there are signs that founding families are more open to new strategies or are chafing under the demands of remaining a publicly traded company. "[T]his change in perspective is a negative for bondholders: selling out typically means higher leverage and an investor base with a short-term investment horizon," says Moody's associate analyst Constantine Nestoras. "Going private, even when the family remains involved, means higher leverage, less transparency, and less investment in core controls." Moody's can be found online at http://www.moodys.com.