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Franchise Value: What is it? Corporate Governance

Balance Sheets Matter

Low Leverage is Better

Even though property prices have risen more than 50% from 2002 to 2012, REITs that have employed less leverage have delivered far better returns over that time period than REITs with higher leverage. The same statement has held true over the vast majority of ten-year periods since the Modern REIT era commenced in the early-'90s. Not surprisingly, investors are willing to ascribe much higher NAV premiums to REITs with low leverage.

Leverage Has Impacted Total Returns
A 10% variance in the lev'g ratio has been associated with a 5% gap in total returns. Every year!



Leverage Has a Big Impact on Pricing
A 10% variance in the lev'g ratio currently equates to a 4% variance in the GAV premiums at which REITs trade

* Charts are from Oct 2, 2012 Heard on the Beach. Left chart uses total returns from Aug '02 to Aug '12; right is based on stock pricing as of Sept '12.


Franchise Value: What is it? Corporate Governance