Standard & Poor's Adds REITs To S&P 500

October 4, 2001 ( - Standard & Poor's will consider including Real Estate Investment Trusts (REITs) in its US indices, including the S&P 500, and the first addition has already been identified.

Standard & Poor’s has announced that Equity Office Properties will replace Texaco in the S&P 500 after the close of trading on October 9. Texaco is being acquired by S&P 500 component Chevron in a transaction expected to close on that date.

Standard & Poor’s also named several REIT additions to the S&P MidCap 400 Index and S&P SmallCap 600 Index.

Broad Review

Standard & Poor’s conducted a broad review of Real Estate Investment Trusts (REITs), their role in investment portfolios, treatment by accounting and tax authorities and how they are viewed by investors. Based on that review, Standard & Poor’s said it concluded that REITs will be eligible for its US indices, the S&P 500, the S&P MidCap 400 and the S&P SmallCap 600.

In effect, Standard & Poor’s has determined that REIT’s have become operating companies subject to the same economic and financial factors as other publicly traded US companies listed on major American stock exchanges, despite their different tax treatment.

Inclusion Guidelines

In reviewing REIT’s for inclusion in its indices, and when calculating earnings per share for its indices, Standard & Poor’s says it will use net income rather than funds from operations in its evaluations for index inclusion and when calculating earnings per share for its indices.

The guidelines for the REIT selection will be the same guidelines used for other company inclusion in the indices, including:

  • liquidity
  • financial viability
  • market capitalization
  • ownership
  • industry and sector representation

Standard & Poor’s will continue to maintain and publish the Standard & Poor’s REIT Composite index, noting that some REITs included in the REIT Composite may also be included in the S&P 500, S&P MidCap 400 or S&P SmallCap 600 Indices.

Participation Principles

REIT’s were not eligible for the Standard & Poor’s indices for several years, a policy that reflected their role as passive investment vehicles during the late 1970s through the mid-1990s, according to S&P.

Those REITs which are principally passive investment companies and which do not actively manage and operate real estate properties may not be added to an Standard & Poor’s index.