Last week, Jim Cramer (host of CNBC's "Mad Money"), helped kick of REITWeek 2012 (NAREIT's Investor Forum) by addressing attendees at a key-not luncheon on June 12. During the presentation Cramer spoke to the conference attendees about a number of issues including portfolio diversification, industry education, and successful refinancing and capitalization.
As reported by Carisa Chappell in a REIT.com article, "Cramer also noted the importance of strong leadership for REITs. For a number of businesses, which are run by 'boring faceless managers,' the executives in charge don't often impact how the company is analyzed, according to Cramer. That's not the case for REITs." As Cramer explained,
The person at the top is everything in this room. You are throwbacks to the way business was done in this country.
'Throwback' CEOs Who Manage Risk Well
Cramer is right in that strong leadership is essential to building a strong investment portfolio and managing risk is the one most important attributes for generating exceptional returns. Accordingly, the REIT industry has leaders and laggards and the most successful leaders are typically the few most highly differentiated CEOs. These "best in class" leaders tend to build their investment strategies on vivid and hardy forms of differentiation that result in remarkable records of consistency.
Successful risk control is the mark of a superior investor and leaders who consistently control portfolio risk are distinguished as much for their ability to control risk as they are for generating sound returns. Essentially, it is the CEO's job to make decisions that, in turn, intelligently bear risk for profit - doing it well is what separates the best from the rest.
To put this "throwback" investment concept in the words of one of the most recognized authors, leaders, and investors - Ben Graham:
Successful investing is about managing risk, not avoiding it.
My Eight Favorite 'Throwback' CEOs
Skillful risk control is the mark of a superior investor and, as simple as it seems, Warren Buffett describes these essential rules of investing as follows:
Rule No.1: Never lose money. Rule No.2: Never forget rule No.1
Understanding that principle (Rule No. 1 and No. 2) and practicing that principle are often ignored and when risk meets adversity, loss always happens. A skilled and sophisticated leader is distinguished by his (or her) ability to manage risk - especially the invisible risk that is often directly related to Buffett's simple but powerful concept called principal preservation.
The following REIT CEOs are distinguished by their outstanding record for controlling risk and their remarkable record for bearing risk for profit. This list is not intended to be a ranking of the best (or the worst) but simply a listing of successful CEOs that have managed to acquire that necessary "trace of wisdom" that Ben Graham calls for.
David B. Henry, has been the Chief Executive Officer of Kimco Realty (KIM) since December 31, 2009, President since December 2008 and Chief Investment Officer and Vice Chairman of the Board of Directors since April 2001. Prior to joining the Company, Mr. Henry was the Chief Investment Officer of G.E. Capital Real Estate since 1997 and has held various positions at G.E. Capital for more than five years prior to 1997. Mr. Henry is also a director of Fairfield County Bank, a mutual savings bank and a director and Chairman of the Compensation Committee of HCP, Inc. Mr. Henry is the past Chairman and a Trustee of the International Council of Shopping Centers (ICSC), on the Board of Governors of NAREIT and a member of The Real Estate Roundtable. Mr. Henry graduated from Bucknell University with a B.S. in Business Administration and received his M.B.A. from the University of Miami. (Source: Forbes.com)
Steven B. Tanger, is a director of Tanger Factory Outlets (SKT) and was named President and Chief Executive Officer effective January 1, 2009. Mr. Tanger served as President and Chief Operating Officer from January 1, 1995 to December 2008. Previously, Mr. Tanger served as Executive Vice President from 1986 to December 1994. He has been with Tanger-related companies for most of his professional career, having served as Executive Vice President of Tanger/Creighton for 10 years. Mr. Tanger is a graduate of the University of North Carolina at Chapel Hill and the Stanford University School of Business Executive Program. Mr. Tanger is the son of Stanley K. Tanger, founder of the Company.(Source: Tanger website)
Don Wood is President and Chief Executive Officer of Federal Realty Investment Trust (FRT) and serves as a member of the Trust's Board of Trustees. Mr. Wood joined Federal Realty in 1998 as Chief Financial Officer. In 1999, he served as Senior Vice President and Chief Operating Officer and in 2000 was promoted to President and Chief Operating Officer. Mr. Wood also serves as chair of the Trust's Investment Committee. Prior to his affiliation with the Federal, Mr. Wood served as Senior Vice President and Chief Financial Officer of Caesars World, Inc., a wholly owned subsidiary of ITT Corporation. Mr. Wood received a Bachelor of Science degree from Montclair State College where he graduated with honors. He received his CPA from the state of New Jersey and serves on the board of governors of the National Association of Real Estate Investment Trusts (NAREIT) as chair, the board of trustees of the International Council of Shopping Centers (ICSC), the board of directors of The Real Estate Roundtable and the board of directors of Post Properties. Mr. Wood also serves as the chair of the Metro D.C. Chapter of the Cystic Fibrosis Foundation. He is a member of the U.S. Capital Chapter of the Young Presidents' Organization. Also, in June 2005, Mr. Wood was named a winner by professional services firm Ernst & Young LLP for the Ernst & Young Entrepreneur of the Year® 2005 Awards in Greater Washington in the Real Estate category.(Source: Federal Realty website)
Robert S. Taubman is chairman, president and chief executive officer of Taubman Centers (TCO), Inc. He joined the Taubman organization in 1976, was elected executive vice president in 1984, chief operating officer in 1988, president and chief executive officer in 1990 and chairman in 2001. He has headed Taubman Centers and served on its board of directors since the company's initial public offering in 1992. (Source: Taubman website)
Mr. Taubman is a member of the board of directors of Comerica Incorporated (NYSE:CMA) and Sotheby's Holdings, Inc. (NYSE:BID). He serves as a director of the Real Estate Roundtable in Washington, D.C., as a trustee of the Urban Land Institute (ULI) and on the Board of Governors of the National Association of Real Estate Investment Trusts (NAREIT). He is the founding chairman of ULI's Detroit Regional District Council and a member and past trustee of the International Council of Shopping Centers. Mr. Taubman holds a B.S. degree in economics from Boston University. (Source: Taubman website)
Spencer Kirk became the Extra Space Storage (EXR) Chairman and Chief Executive Officer on April 1, 2009. He previously served as the Company's President since September 2007 and as our predecessor's Executive Vice President from 1998 to 2004. Mr. Kirk directs all strategic planning and oversees the business operations of the Company. Mr. Kirk has been associated with the Extra Space Storage organization for nearly ten years, having served as Executive Vice President of the company for seven years, and as a Director of the Company since its IPO in 2004. As the owner of more than 2.3 million shares, Mr. Kirk is EXR's largest private individual shareholder. Mr. Kirk began his career when he co-founded Megahertz Corporation in 1985, which became the leading manufacturer of modems for laptop computers in the world. Serving as Chairman and Chief Executive Officer, the company grew from a basement operation to the leading supplier of solution-oriented mobile data communications products. In 1988 the company was one of the first to offer third-party modems for the nascent laptop computer market. Megahertz went public in 1993 and the following year was acquired by US Robotics, which was later acquired by 3Com Corp. Mr. Kirk holds a BA in finance and an MBA from the University of Utah. (source: Extra Space website)
Tom Lewis is the Chief Executive Officer of Realty Income (O) and he joined the company in 1987 (25 years ago) and served in a variety of executive positions before assuming the Chief Executive Officer role in 1997. Prior to joining Realty Income Mr. Lewis was an executive with another real estate company, an investment specialist with an investment firm and worked in marketing for Procter and Gamble. Mr. Lewis also serves as an independent director, on the board of directors of another New York Stock Exchange listed Real Estate Investment Trust and is involved in a variety of real estate industry organizations. (Source: Realty Income website)
Stuart A. Tanz has served as the President and Chief Executive Officer and one of our directors of Retail Opportunity Investment Corporation (ROIC) since 2009. Mr. Tanz was the Chief Executive Officer of United Income Properties, Inc. from 2006 to 2009 and its Chief Operating Officer and President from 1988 to 1992. United Income Properties, Inc. was a privately owned retail real estate development company in Southern California which developed, owned and operated various shopping centers in Southern California and now owns, manages and operates approximately 2,250 self-storage units and a retail property. From 1997 to 2006, Mr. Tanz was the Chairman, Chief Executive Officer and President of Pan Pacific Retail Properties, Inc., during which period its total market capitalization increased by 795% from $447 million to over $4 billion. Mr. Tanz oversaw and administered all aspects of Pan Pacific Retail Properties, Inc.'s business, management, finance and personnel and led its $146 million initial public offering on the NYSE and ultimately in the sale of the company for $4.1 billion to Kimco Realty Corp. in November 2006. From 1992 to December 1996, Mr. Tanz was a director of Revenue Properties Company Limited and was the Co-Chief Executive Officer from May 1996 to August 1997. Revenue Properties Company Limited was a publicly traded company on the Toronto Stock Exchange that was the parent company of Pan Pacific Development Corp., where Mr. Tanz was the President and Chief Operating Officer from 1992 to 1997. From 1982 to 1988, Mr. Tanz was the Director of Acquisitions of Southern California at Bramalea Limited, based in Toronto, Canada, and Bramalea California Inc. Mr. Tanz is a member of the Advisory Council for the University of Southern California Lusk Center for Real Estate. Mr. Tanz received a B.S. in Business Administration from the University of Southern California, Marshall School of Business. (Source: ROIC website)
Gary B. Sabin has served as the Chairman and Chief Executive Officer of Excel Trust (EXL) since the formation in December 2009. Since October 2003, Mr. Sabin has served as Chairman, Chief Executive Officer and President of Excel Realty Holdings. From September 2001 to October 2003, Mr. Sabin served as Co-Chairman and Chief Executive Officer of Price Legacy Corporation. From November 1997 to September 2001, Mr. Sabin served as Chairman, President and Chief Executive Officer of Excel Legacy Corporation. From September 1998 to April 1999, Mr. Sabin served as a Director and President of New Plan Excel Realty Trust. From January 1989 to September 1998, Mr. Sabin served as Chairman, President and Chief Executive Officer of Excel Realty Trust. In addition, Mr. Sabin has served as Chief Executive Officer of various companies since his founding of Excel Realty Trust Inc.'s predecessor company and its affiliates beginning in 1978. He has been active for over 30 years in diverse aspects of the real estate industry, including the evaluation and negotiation of real estate acquisitions, management, financing, development and dispositions. Mr. Sabin also currently serves as chairman of The Sabin Children's Foundation and Vice Chairman of the Cystic Fibrosis Foundation. Mr. Sabin received a Master's Degree in Management from Stanford University as a Sloan Fellow and a Bachelor of Science in Finance from Brigham Young University. (Source: Excel Trust website)
Two of the Greatest Leaders of All Time
I consider Winston Churchill to be one the greatest leaders of all time. Churchill never accepted the fact that he couldn't change his weakness (a childhood speech impediment) and he sought diligently to overcome it to become one of the best public speakers in the world. In the words of my legendary leader:
Success is going from failure to failure without a loss of enthusiasm.
As we all have learned, risk is inescapable and leaders (and investors) are unlikely to succeed for long without explicitly dealing with risk. Outstanding leaders are distinguished as much for their ability to control risk as they are for generating returns. In the words of Ben Graham:
Investment is most intelligent when it is most businesslike. It is amazing to see how many capable businessmen try to operate on Wall Street with complete disregard of all the sound principles through which they have gained success in their own undertakings.
For more information on these REITs you can check out these detailed Seeking Alpha articles here:
Also, here are some CEO interviews that I conducted on behalf of Forbes.com: