Are REITs Relevant II?
Last article covered the basics of some misconceptions of REITs. In part II we address how managers “add value” and dodge restrictions imposed on them. The term “adding value” is short hand to justify management overhead. That value is supposed to be the profit, realized or not yet realized in a business that management created solely though its skill and expertise. The easiest way in the last 20+ years is to cut costs.The “Do more with less” ethos does work. But at the cost of employee attrition rates and wide knowledge gaps from senior employees leaving. Customer service levels also suffer because of low moral and chronic understaffing. The other most popular way is accounting slight of hand. The transition from GAAP to IFRS accounting has enabled REITs to capitalize things like window cleaning, carpet cleaning, lawn mowing, and the labor that goes into those activities. All serving to increase the “value” of the properties. This practice is not endemic to just REITs, O&G companies can do this as well. When a geologist drills … Read more