11.18.14: REIT’s Will Be 11th Sector of the SP 500

Standard & Poor’s made a big announcement in the last few weeks: REIT’s will be broken out as a separate asset class beginning in September, 2015 and will constitute the 11th sector of the SP 500.

If you follow our regular weekly earnings work on this blog, you know the other 10 sectors by now.

Greg Harrison of Thomson Reuters provided me with the following spreadsheet this morning on the new sector and I was somewhat surprised at its small size. FC – REIT sector

The market cap will be less than 3% of the SP 500, which means that the REIT’s listed will be smaller than the Telco, Utilities, and Basic Materials sectors of the SP 500.

The REIT sector will be roughly 2.3% of the SP 500 when it is spun out, and is currently contained in the Financial sector of the SP 500.

Although¬† I haven’t owned it in a while for clients, given the popularity of the rental market in terms of multi-family housing, Equity Residential, which is a Sam Zell REIT, is our favorite. EQR’s CEO is a guy by the name of David Neithercut, who was EQR’s CFO in the early 1990’s, when a lot of the REIT’s had just come public, and I was looking at REIT’s from the debt or credit side of the capital markets.

Sam Zell timed the market perfectly in late 2006, when he sold Equity Office to Blackstone, so Boston Properties (BXP) looks like it will be the only commercial real estate or office property REIT in the index.

I got to know some of the retail REIT’s like Kilmco and others¬†as well in the early 1990’s, although you would think mall properties are another sector being punished or pressured by Amazon. (Long AMZN).

Kimco (KIM) is (or was back then) considered to be a very good operator.

To my knowledge, there isn’t a lot of information being disseminated on the new sector, so Fundamentalis readers have gotten an early look.

Hope this helps.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager



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