The Real Deal New York

S&P 500 will break real estate out as its own sector

Move likely to boost value of REIT stocks

December 30, 2015 08:06AM

Real estate investment trusts had a bit of a rough year despite the surge in the wider market, but a change in policy at the S&P 500 and MSCI are likely to provide a tailwind for the firms in 2016.

The two stock indices are planning to separate real estate securities from those of banks and insurance companies, creating a new industry sector.

The S&P 500 currently has 10 sectors. Real estate stocks – currently 25 companies – make up about 2.6 percent of market value, making it the second smallest sector after telecommunications as of Nov. 30, the Wall Street Journal reported.

The move is likely to boost the price of those stocks, experts said.

“It increases the demand for real-estate securities,” Gil Menna, a partner at investment firm Goodwin Procter, told the Journal.

As of late September, REIT stocks were trading at an almost 15 percent discount to what investors would pay for the properties that compose them, the largest gap in five years, according to Green Street Advisors.

Nonetheless, firms like Forest City Enterprises and crowdfunding pioneer Fundrise have moved forward with major new REIT offerings in the last few months. [WSJ]Ariel Stulberg