Why your real estate investment trust needs a robust treasury function

In the dynamic and capital-intensive world of real estate investment trusts (REITs), the treasury function is often overlooked in favor of asset acquisition, portfolio management, and investor relations. However, a robust treasury function is not just a support role; it is a strategic enabler that underpins the financial health, operational efficiency, and long-term sustainability of a REIT. As REITs navigate increasingly complex financial landscapes, the importance of a well-structured and proactive treasury team cannot be overstated.

The strategic role of treasury in a REIT

At its core, the treasury function is responsible for managing a REIT’s liquidity, funding, financial risk, and capital structure. These responsibilities are critical in an industry where large-scale transactions, debt financing, and cash flow management are daily realities. Treasury ensures that the REIT has the right amount of cash at the right time, sourced at the right cost, and deployed in the right way.

A strategic treasury function goes beyond transactional duties. It plays a key role in:

• Capital planning and allocation
• Debt and equity financing
• Interest rate and currency risk management
• Cash flow forecasting
• Banking and investor relationships

Each of these areas directly impacts the REIT’s ability to grow, maintain financial stability, and deliver returns to shareholders.

Liquidity management: the lifeblood of operations

Liquidity is the lifeblood of any REIT. Whether it’s funding property acquisitions, covering operational expenses, or paying dividends, having access to sufficient cash is non-negotiable. A robust treasury function ensures that liquidity is managed proactively through accurate forecasting, contingency planning, and efficient cash pooling across entities.

In times of market volatility or economic downturns, liquidity management becomes even more critical. Treasury teams must be able to model various scenarios, assess the impact on cash flows, and implement strategies to preserve liquidity such as renegotiating loan covenants, drawing on credit facilities, or deferring capital expenditures.

Capital structure optimization

REITs typically rely on a mix of debt and equity to finance their operations. The treasury function is instrumental in determining the optimal capital structure that balances cost, risk, and flexibility. This involves:

• Evaluating the cost of capital from different sources
• Managing leverage ratios to maintain credit ratings
• Timing capital raises to align with market conditions
• Structuring debt maturities to avoid refinancing risk

A well-managed capital structure enhances the REIT’s financial resilience and supports strategic growth initiatives.

Debt management and financing strategy

Debt is a fundamental component of REIT financing. Treasury teams are responsible for negotiating loan terms, managing interest rate exposure, and ensuring compliance with covenants. In a rising interest rate environment, active debt management becomes a competitive advantage.

Treasury must also maintain strong relationships with lenders and capital markets to ensure access to funding. This includes preparing detailed financial models, presenting investment cases, and maintaining transparency with stakeholders.

Moreover, treasury plays a key role in refinancing strategies by identifying opportunities to reduce interest costs, extend maturities, or diversify funding sources. These actions can significantly impact the REIT’s profitability and risk profile.

Risk management: protecting value

Real estate markets are subject to a range of financial risks, including interest rate fluctuations, currency volatility (especially for international REITs), and counterparty risk. Treasury is the first line of defense against these risks.

Through the use of derivatives, hedging strategies, and scenario analysis, treasury teams can mitigate the impact of adverse market movements. For example, interest rate swaps can protect against rising borrowing costs, while forward contracts can lock in favorable exchange rates.

A proactive risk management framework not only protects the REIT’s financial performance but also enhances investor confidence and regulatory compliance.

Cash flow forecasting and planning

Accurate cash flow forecasting is essential for strategic decision-making. Treasury teams must integrate data from property operations, financing activities, and corporate expenses to build reliable forecasts. These forecasts inform decisions on dividend payments, capital expenditures, and debt servicing.

Advanced forecasting tools and analytics can provide real-time insights, enabling treasury to respond quickly to changes in market conditions or operational performance. This agility is crucial in a sector where timing and precision can make or break investment outcomes.

Enhancing operational efficiency

Beyond strategic planning, treasury contributes to operational efficiency through automation, centralization, and process optimization. By implementing treasury management systems (TMS), REITs can streamline cash management, improve visibility, and reduce manual errors.

Centralized treasury operations also enable better control over bank accounts, payment processes, and intercompany transactions. This reduces operational risk and enhances compliance with internal policies and external regulations.

Supporting investor relations and transparency

Investors in REITs expect transparency, stability, and consistent returns. Treasury plays a vital role in delivering on these expectations by ensuring financial discipline and clear communication. Whether it’s explaining the impact of interest rate changes, outlining funding strategies, or providing updates on liquidity positions, treasury supports the investor relations function with credible and timely information.

Moreover, treasury’s involvement in dividend planning and capital allocation directly affects shareholder value. A well-managed treasury function can help maintain dividend consistency even during challenging market conditions.

Navigating regulatory and ESG requirements

REITs operate in a highly regulated environment, with requirements around financial reporting, tax compliance, and capital adequacy. Treasury ensures that the REIT adheres to these regulations while optimizing financial performance.

In addition, environmental, social, and governance (ESG) considerations are becoming increasingly important. Treasury can contribute by integrating ESG factors into investment decisions, financing strategies such as green bonds, and risk assessments. This alignment with ESG goals enhances the REIT’s reputation and access to sustainable capital.

Treasury as a strategic partner

In today’s complex and competitive real estate landscape, the treasury function is no longer a back-office operation; it is a strategic partner that drives financial performance, manages risk, and supports growth. For REITs, investing in a robust treasury function is not just prudent, it is essential.

From liquidity management to capital structure optimization, from risk mitigation to investor communication, treasury touches every aspect of a REIT’s success. As the industry evolves, those REITs that recognize and empower their treasury teams will be best positioned to thrive.

How Brewer Morris can help you source great treasury talent for your REIT

At Brewer Morris, we’re proud to be the partner of choice for treasury recruitment at the highest level. If you’re planning your next senior hire, get in touch with us for insights and to explore how we can support you.

Alternatively, if you are a treasury professional looking for a new opportunity, check out our latest treasury jobs.