Page 33 - Surveyor 50.2 2015
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PROPERTY WATCH

Ting Kien Hwa

Centre for Real Estate Research (CORE)
Faculty of Architecture, Planning & Surveying
Universiti Teknologi MARA, Shah Alam

FTSE NAREIT
PureProperty® Index:
A Solution to Having a Daily
Direct Property Index?

NAREIT has recently launched FTSE NAREIT                              simply by buying positions in the constituents of a given
                     PureProperty® Index Series1 which reports daily  FTSE NAREIT PureProperty index in proportion to their index
                     returns on diversified portfolios of unlevered    weights.
                     properties as well as equity holdings in the
                     real estate asset class, providing insights and  (b) Unlevered Exposure
                     opportunities for investors.                     Financial instruments can be developed to provide investors
                                                                      with unlevered exposure to one or more segments of the
  The PureProperty Series aims to track the underlying real           nearly $1.5 trillion of REIT-owned properties by taking positions
  estate assets owned by constituent REITs. This involves             corresponding to the constituents of a property-level FTSE
  stripping out the impact of gearing on REIT indices, while          NAREIT PureProperty index, including positions corresponding
  avoiding the lag inherent in appraisal-based performance            to fixed-income indices that reflect the cost of debt employed
  indicators. The result is an investable total return series         by REITs and that therefore help to correct for the use of
  computed on a daily basis.                                          leverage by REITs.

  The values are calculated from daily stock market valuations        (c) Tactical Asset Allocation
  of, and dividends paid by, stock exchange-listed U.S. equity        The index series supports the creation of investment products
  REITs, using a patented methodology to infer property returns       that will allow investors to take or adjust positions quickly and
  based on detailed information about the holdings and balance        efficiently by buying and selling positions corresponding to
  sheets of property-owning REITs. U.S. REITs own and manage          the constituents and weights of the appropriate FTSE NAREIT
  high-quality properties in and around major metropolitan areas      PureProperty indices, all of which are traded in liquid listed
  throughout the country.                                             markets.

  The FTSE NAREIT PureProperty® indices measure returns of            (d) Hedging and Risk Management
  diversified portfolios of unlevered properties in the Apartment,     Direct real estate investors will be able to more effectively
  Health Care, Hotel, Industrial, Office and Retail sectors; for the   manage real estate portfolio risks with the immediacy
  East, Midwest, South and West regions of the United States;         securities investors enjoy. For example, investment products
  and for 11 region/property type combinations. In addition           indexed to the FTSE NAREIT PureProperty indices will enable
  to the property indices representing the returns to unlevered       investors with large positions in a particular segment of the
  property investments, the FTSE NAREIT PureProperty® Index           real estate market to hedge their over-exposure and reduce
  Series also includes equity indices measuring the investment        their real estate portfolio’s concentration risk.
  returns to properties through the balance sheets of the REITs
  holding them.                                                       (e) Pulse of the Market
                                                                      The indices provide valuable insights on a daily basis for
  While indices of property-level returns based on private real       developers, brokers, lenders and others who need to monitor
  estate holdings are computed monthly or quarterly and are           the pulse of the real estate market on a timely basis to see
  published with four to eight-week delays, the FTSE NAREIT           how property values have been changing.
  PureProperty® indices are published on the same day as
  the returns they measure. Same-day computation provides             (f) Leverage Targeting
  multiple benefits for investors.                                     Combining holdings corresponding to property-level and
                                                                      equity-level FTSE NAREIT PureProperty® indices may enable
  The new FTSE NAREIT PureProperty® Index can be applied for          investors to effectively tailor the amount of leverage in their
  the following portfolio management purposes:                        real estate exposures.

  (a) Completely Investable                                           1 Source: https://www.reit.com/data-research/reit-indexes/ftse-
  Investment products that provide returns replicating the            nareit-pureproperty-index
  indices, without significant tracking error, can be developed

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