By David E. Simon

The modern REITs of today provide investors the opportunity to invest in liquid, dividend-paying, quality real estate firms actively managed for the benefit of all stockholders with the highest level of corporate governance.

As an industry, REITs rank a close second, just behind utilities, according to Institutional Shareholder Services' Corporate Governance Quotient (CGQ) data. The CGQ index for real estate companies is currently 26.3 percent above the overall average (see page 42 for the ISS governance rankings). In addition, 58 real estate companies (or 27 percent) have ratings in the top 10 percent of their various indices. The commitment to stockholders demonstrated by these results bodes well for our industry, but our work is not yet complete.

We must continue to monitor and enhance our corporate governance practices and procedures. It is also essential that we remain abreast of new requirements and take the necessary steps to ensure compliance with all applicable rules and regulations.

Lastly, I believe that we should use our ISS scores, as well as ratings developed by other organizations, including Moody's, GovernanceMetrics International, Glass, Lewis & Co., and Standard & Poor's, to benchmark our efforts and to raise the bar on our governance practices and programs.

Common sense tells us that good corporate governance is important to stockholders; however, it is difficult to measure the impact of good governance on stock price. Researchers have attempted to quantify the effect, and indications are that the impact is reflected in long-term stock price rather than the short term.

It is also difficult to gauge which governance issues are the most critical to investors. Dean Starkman's insightful article, “The 8 Governance Issues That Matter Most,” documents his conversations on the subject with several REIT investment experts. The article reveals that while there is disagreement on which elements are most important, governance does in fact play a significant role in the investment decision.

The implementation of good corporate governance does more than improve a company's image—it's just good business sense. At the end of the day, what matters is that all real estate companies adopt practices that go above and beyond compliance and set high standards that other industries will follow.

We should all be proud that our industry has taken a leadership role in corporate governance and adopt measures to ensure that our position at or near the top of governance rankings will continue.

In reviewing the ISS governance data (which includes each company's index group), it struck me just how mainstream REITs have become. Our members are included in all of the S&P indices, all of the Russell indices, the Forbes Global 2000 and the Fortune 1000.

As a result of the strong returns generated over the past five years and NAREIT's effective communication of our message that REIT stocks belong in every diversified portfolio, REITs are frequently mentioned in the financial media. It wasn't that long ago that we were faced with the daunting task of educating the investment community about the benefits of investing in real estate investment trusts.

I am pleased with how far we have come in the past decade and believe that the REIT industry will continue to prosper with the leadership that exists within this exciting industry.

David E. Simon
NAREIT CHAIR
CEO, SIMON PROPERTY GROUP