NEW YORK CITY-It’s a matter of what the market can bear. In this morning’s lead story, we wondered allowed if more information on REIT performance is becoming too much information. In this update, Michael Grupe, EVP of research and investor outreach of Washington, DC-based NAREIT, responds with the above philosophical approach to market need.
“As you know,” he tells GlobeSt.com, “there’s significant interest in REIT investment today among investors from all walks of life. In this environment, it’s natural to expect the introduction of new REIT indices and investment products based on them. Ultimately, the market will determine their success.”
The original question was based on the news that S&P Dow Jones had just launched another in its popular REIT indices.
The original story appears below:
NEW YORK CITY-In what seems an already crowded market, another REIT index has hit the streets. Locally based S&P Dow Jones Indices has launched its US Select Equal Weight REIT Index, designed to measure the performance of public REITs and what it terms “REIT-like” securities.
The launch is simply a reflection of what investment clients want, according to Michael Orzano, associate director of global equity indices at S&P Dow Jones Indices. “Equal-weighting is a logical product extension as market participants’ attitudes towards REITs mature and they begin to seek more nuanced products,” he says.
Orzano explains that the index is a “subset” of Dow’s US Select Real Estate Securities Index. “The index constituents must be both an equity owner and operator of commercial or residential real estate and at least 75% of the company’s total revenue must be derived from the ownership and operation of real estate assets,” he says.
“Businesses that are classified as Specialty under the REIT/RESI industry classification hierarchy (net-lease REITs, timber REITs, railroad REITs, tower REITs, etc.) and hybrid REITs are excluded.” The equal weighting system alters the investment characteristics of the portfolio by reducing the impact of the largest companies and increasing the impact from the smaller companies. But how much information is too much information? NAREIT also has a bevy of indices, so is the market becoming oversaturated?
We put that question to Orzano. While S&P has indices similar to those offered by FTSE/NAREIT, Orzano says his firm’s two newest products are “unique.”
“The most distinctive element of the DJ US Select Equal Weight REIT Index is its weighting scheme,” he says. “The equal weighting methodology reduces the impact of large companies and increases the impact from smaller companies relative to a traditional market capitalization weighted index.”
The other newbie, the “Core US Index,” he explains, is designed to be “representative of direct real estate investments held by institutional investors. The property types eligible for inclusion are limited to companies involved in activities that are focused on longer-term rent generation.” Property types that tend to include shorter lease-term focused REITs, such as factory outlets, hotels, manufactured homes, mixed industrial/office and suburban office are excluded, he adds.
“Both indices provide market participants with alternative ways of measuring the US REIT market,” he tells GlobeSt.com. “Equal-weighting provides a different size profile of the overall index.”
GlobeSt.com’s calls to NAREIT for comment were not returned by deadline. We will update this story as new information comes in.