TRD Insights: The 56 REITs whose bonds the Fed will buy

The envelope, please.

As part of its many-pronged response to the severe credit crisis, the Federal Reserve established a secondary market corporate credit facility to buy corporate bonds issued by highly rated companies — including real estate firms.

Among the REITs included in the index, mall owners Westfield and Simon Property Group are the two largest, respectively accounting for 0.31 and 0.29 percent of the overall index. These are followed by senior housing REIT Welltower, data center REIT Digital Realty Trust, office landlord Boston Properties and industrial landlord Prologis.

Some 56 companies are included in the index, with office landlords SL Green, Vornado and Columbia Realty Trust each representing just 0.01 percent of the index.

The facility, established by the Federal Reserve Bank of New York, began purchasing bonds in mid-June with the objective of creating “a corporate bond portfolio that tracks a broad market index” that will be recalculated at least every four or five weeks.

Real estate investment trusts account for just 3 percent of the eligible issuers in the initial index. Companies in the non-cyclical consumer (20 percent) and cyclical consumer (16 percent) sectors are most well-represented, followed by utilities (10 percent), energy and technology (9 percent each).

To be eligible for the index, issuers must meet certain ratings requirements and may not have received other government assistance through the CARES Act or other such programs. The CARES Act’s conflict-of-interest requirements also apply, meaning that firms owned by President Donald Trump, senior White House officials or members of Congress and some of their family members are not eligible.

Subsidiaries of foreign companies (such as Westfield, acquired in 2018 by Paris-based Unibail-Rodamco) can still qualify for the program if they have “significant operations in and a majority of [their] employees based in the United States.”

While the index’s composition represents a target for the New York Fed’s bond buys, it is unclear how far along the new credit facility is. Transaction data released by the Fed on Sunday, reflecting trades settled as of June 18, included just two REIT bond buys — $4 million worth of bonds issued by Healthpeak Properties and $2.5 million from triple-net, single-tenant commercial REIT Realty Income Corp.

The Fed has also bought bonds issued by such household names as Berkshire Hathaway, Coca-Cola, McDonald’s, Walmart, AT&T, Comcast and Fox, according to other media reports.