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Author: SGX   |   Latest post: Mon, 19 Jul 2021, 9:50 AM


REIT Watch - Looking Beyond the Index

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S-Reits & Property Trusts not in the FTSE EPRA Nareit Global Index Series

INDEX inclusion is often a key milestone for companies as it contributes to improved investor visibility which translates into potential investability, passive funds tracking, and enhanced liquidity.

The FTSE EPRA Nareit Global Real Estate Index Series is one of many benchmarks tracking the performance of S-Reits and property trusts.

The index series, jointly developed by FTSE Russell with the European Public Real Estate Association (EPRA) and the National Association of Real Estate Investment Trusts (Nareit), is a widely followed global benchmark with an estimated US$340 billion of assets under management actively benchmarked or passively tracking the indices.

According to the latest index factsheet (as at May 20, 2021), there are 19 S-Reits and property trusts in the FTSE EPRA Nareit Global Index. Quarterly index reviews are in March, June, September and December, based on data at the close of business of the Monday four weeks prior to the review effective date.

Based on the index methodology, index inclusion is subject to but not limited to, meeting various requirements such as sector, size, liquidity and free float. These include being listed on an official stock exchange, companies in the core business of real estate or deriving at least 75 per cent of Ebitda from relevant real estate activities and having a minimum free float of 5 per cent.

Securities are tested for liquidity semi-annually in March and September and non-constituents must meet a minimum liquidity turnover at least 0.05 per cent of their shares in issue based on their median daily trading volume per month, in 10 of the 12 months prior to the review.

The size rule is a relative measure expressed as a percentage of the regional free float index market capitalisation.

Non-constituents are required to meet certain thresholds for inclusion.

A recent change in ground rules is the lowering of investable market cap threshold for the Developed Asia series - announced to be reduced from 0.3 to 0.1 per cent.

Referring to its June 30, 2021 factsheet, the FTSE EPRA Nareit Developed Asia Index's market cap is at US$423 billion and a 0.1 per cent threshold would assume a free-float market cap criterion of around US$423 million at 0.1 per cent, versus US$1.27 billion at 0.3 per cent.

With the change, more mid-cap Reits could potentially be included in the index, subject to meeting all index requirements. Of the 40 actively traded S-Reits and property trusts, there are 21 trusts which are not part of the index series today.

Other products listed on the SGX and tracking FTSE EPRA Nareit Index Series include the NikkoAM-StraitsTrading Asia ex-Japan Reit ETF NikkoAM-STC Asia REIT: CFA 0% which tracks the FTSE EPRA Nareit Asia ex-Japan Reits 10% Capped Index and the SGX FTSE EPRA Nareit Asia ex-Japan Index Futures. 

REIT Watch is a weekly column on The Business Times, read the original version.

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