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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Perspective who wrote (186772)	2/26/2009 11:07:21 PM
From: ChanceIs	Read Replies (1) \| Respond to of 306849

REITs That Could Be Removed From S&P 500 Wachovia says other names could readily replace current components. Wachovia Capital Markets ACCORDING TO WACHOVIA'S senior index strategist, Developers Diversified Realty (ticker: DDR) is the real-estate investment trust (REIT) most at risk of removal from the Standard & Poor's 500. Failure to comply with eligibility requirements for addition is not grounds for deletion unless ongoing conditions or corporate actions warrant modification, and we suspect the pending capital infusion may prove to be the catalyst for reconsideration. As of Dec. 31 2008, 22% of Developers Diversified was held by index-driven investors (e.g., Barclays, Vanguard). Apartment Investment & Management (AIV) would be the next most likely candidate for deletion in our view, but as with Developers Diversified a catalyst is likely required to trigger its removal. As of Dec. 31, 28% of Apartment Investment's shareholders were index driven. Federal Realty Investment Trust (FRT) is best positioned for future inclusion [in the index]. Federal Realty is the largest REIT in the Standard & Poor's 400 (No. 46); however, Federal Realty's equity capitalization is 15% or $500 million below the minimum $3 billion eligibility requirement. While not a consideration for inclusion, it is interesting that Federal Realty's common-equity capitalization is presently larger than Kimco Realty's (KIM) and Kimco is No. 390 in the S&P 500. S&P has lowered the equity-capitalization threshold from $5 billion to $4 billion and again to $3 billion, but our senior index strategist does not expect a further reduction -- which could potentially open the door to Federal -- because of the implications to capitalization thresholds for the S&P 400 and S&P 600 indexes. After Federal Realty, Rayonier (RYN) is the next most likely candidate; Rayonier is the second-largest REIT in the S&P 400 (No. 70), but its equity capitalization is 25% below the minimum $3 billion threshold. REITs account for 0.79% of the S&P 500 index versus 0.89% in the universe the index committee is attempting to mirror, so it stands to reason that S&P will look to maintain or increase REIT representation over time. All else equal, after the addition of Ventas (VTR) on March 3, we estimate REITs will represent 0.84% of the index, leaving some room for continued growth. However, aside from Ventas, there are no other REITs not presently in the S&P 500 that meet the eligibility requirements for inclusion. In total, five of the 14 REITs presently in the S&P 500 index do not meet the eligibility requirements for inclusion (Developers Diversified, Apartment Investment, ProLogis (PLD), Host Hotels & Resorts (HST), Kimco), so there are situations where a REIT not in the S&P 500 (e.g., Federal Realty) is more qualified for addition than a REIT currently in the S&P 500 index (e.g., Kimco), but eligibility criteria is a test for addition, not for continued membership. As REIT equity valuations recover, it is plausible that new candidates for inclusion will emerge and perhaps some existing members may lose their status. -- Jeffrey J. Donnelly -- Christopher Haley