REIT Heads Feeling Stock Market Pain

Independent executive compensation consulting firm Steven Hall & Partners and executive search firm Equinox Partners have found that those at the top of the masthead at REITs in the United States have not escaped the real estate industry’s stock woes. The results of a study by the two New York City-based companies show that, at the median, individual REIT CEOs have seen the value of their equity holdings nosedive by about 49 percent over the last year. The credit crisis kicked off the downward spiral in real estate across the country in 2007 and it’s been a rocky road ever since. According to a global REIT report by Ernst & Young, last year brought the biggest days of gains and losses in the history of U.S. REITs, marking record declines in price.  CEOs of the 159 publicly traded REITs involved in the Steven Hall-Equinox study commenced 2008 with an aggregate $12.1 billion in equity value in their companies, and closed the year with $5.6 billion less. The median value of total equity holdings–owned shares, options and restricted and performance shares–for individual CEOs went from $15.6 million to $8 million.  “You read about ‘fat cat CEOs,’ but the CEOs got hurt big-time in terms of stock,” Steve Hall (pictured), managing director of Steven Hall & Partners, told CPN. “There’s a pretty good linkage between shareholder welfare and CEO welfare. CEOs took it on the chin on an absolute basis, money wise.” Equity compensation arrangements are designed to maintain a level playing field, and it’s working. “Let’s recognize that these people, the CEOs, aren’t benefiting while the shareholders are suffering alone.” As bad as things are for REITs, the timing could be right for bringing in new blood. “Equity compensation is one of the best tools to lock CEOs into place,” Hall said. “Right now, there’s nothing locking them in, they have the freedom to leave, so we often find some companies shopping for new executives. And the new executives can get new stock options. It’s walk-across-the-street repricing.” However, a REIT executive’s chances of moving on and trading up, stock wise, are slim. “At this moment, the job market is on the rough side,” he said. “There’s not a lot of changing, but if we don’t start locking CEOs in place in advance, if there is not enough glue, we stand a good chance of losing them. To protect shareholders, the question has to be, have I done enough now to protect my talent? The companies have to start right now; they could be making new equity grants, or new incentive plans for turning the company around. But if you’re trying to design a plan, you’re trying not to make employees richer than shareholders.”