In a recent article, we provided an overview of real estate investment trusts (REITs). REITs generate profits through rental income and asset disposition, but what makes them unique is that they must legally distribute a majority of their taxable income to their shareholders in the form of dividends—also known as yields.
Because of their structure, REITs must balance operational goals and shareholder objectives. The challenge is these don’t always align.Capital strategies can vary significantly among REITs, depending on how they want to report net income.
REIT management companies play an important role in managing these expectations through the leasing and maintenance of their buildings. They are typically third-party property managers responsible for building-level operations on behalf of REITs. Too much focus on reinvestment into properties and shareholders might not find the REIT as valuable from a cashflow perspective. Conversely, too much focus on dividends and properties owned by the REIT may not get adequate capital investments over the long term and lose value at disposition.
REIT management companies (and the real estate industry generally) are now actively investing in software and technological adoption. In the past many in the industry have viewed property management as a “touch and feel” business where technology has had little impact. But because of the unique and important operating position REIT management companies are in, software is no longer just a value-add investment—it’s a necessity.
Key Software Solutions for REIT Management Companies
For REIT management companies, software can drive immediate value in the following areas:
- data management
- capital expenditure management
- strategic planning and investment optimization
- procurement and inventory control
- team and tenant communications
The value proposition of software, accordingly, is significant in the REIT management industry. There are also three important larger benefits:
The financial performance of REITs come under intense scrutiny. Every stock analyst, fund manager and DIY investor can access how a REIT manages their capital. At the ground level, REIT management companies play a key part in advising and executing on capital plans. Software in this case, drives transparency for the REIT by developing data-driven, quantitatively rigorous operating plans and investment strategies. REITs thus have a better picture of their entire portfolio through their property manager.
As mentioned above, software can help in the strategic planning process by optimizing capital investments. REIT management companies can leverage management software to help distribute capital effectively across a portfolio while aligning with, and identifying, key business objectives. What are the life cycle costs between building A and B? Which one needs more upfront investment? What strategic recommendations should be made to REIT executives? Manual spreadsheets are not equipped to answer important questions like these.
REITs benefit from a strong operating platform. First, shareholders find the company attractive and value the REIT higher in the market. Second, tenants have confidence in their landlord and property manager, reinforcing leasing demand and leading to a higher probability of renewals.
What’s the Next Step?
REIT management companies will benefit from software that aligns with their business objectives. This is one application of 4tell™’s iPlan™ Portfolio Solutions platform. It can help maximize returns on performance while also managing the integrity and optimization of a real estate portfolio.
For more information on the customization and benefits of the tool, please visit our software solutions page and request a demo.
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