Further to the notice released on 3 October 2011, the FTSE EPRA/NAREIT Global Index Series Supervisory Committee (the Global Group) re-affirms that the rules concerning eligibility for the FTSE EPRA/NAREIT Global Real Estate Index Developed and Emerging Series and the nationality assignments of companies will be revised. The new rules will come into effect in March 2012.
An updated version of the FTSE EPRA/NAREIT Global Real Estate Index Series Ground Rules is now available and the relevant excerpt from the revised rules is included below:
4.8 The FTSE EPRA/NAREIT Global Real Estate Index Series is divided into Developed and Emerging sub-series. Assignment of companies to the sub-series is made according to the following criteria:
a) New constituents will be classified as Developed if greater than 75 percent of their total annual EBITDA has been derived from Developed Markets (as classified by the FTSE Country Classification Committee) for two consecutive years as evidenced from the company’s annual reports. Otherwise the constituent will be classified as Emerging.
b) Existing Developed series constituents will move to the Emerging series if their total annual EBITDA from Developed markets has decreased to less than 50 percent for two consecutive years as evidenced by the company’s annual reports. Existing Emerging series constituents will move to the Developed series if their total annual EBITDA from Developed markets has increased to greater than 75 percent for two consecutive years as evidenced by the company’s annual reports.
4.9 For the purposes of creating local and regional indices the following criteria are used to determine the nationality and regional allocation of a company:
a) The Nationality of a company will generally be the same as that allocated by FTSE in the construction of the FTSE Global Equity Index Series except where this would be inconsistent with the allocation of the company to the Developed and Emerging sub-series as provided for in the above rule.
b) In this eventuality, the Nationality of a company in the Developed sub-series will be determined by the Developed country, and in the case of an Emerging sub-series constituent the Emerging country, that contributed most to the company EBITDA as evidenced by the company’s most recent financial report. In the event of a company moving between the Developed and Emerging sub-series, its Nationality will be re-evaluated according to this rule.
c) The Nationality of a company so assigned may also be re-assessed if for a constituent of the Developed sub-series a different Developed country, and for a constituent of the Emerging sub-series a different Emerging country, has contributed most to the company’s total annual EBITDA over two consecutive years as evidenced by the company’s annual reports.
Company Nationality assignments are subject to the approval of the EPRA/NAREIT regional committees.
The regional allocation of a company will be determined by its Nationality.
1. Existing constituents: EBITDA will be tested prospectively over a two-year period for developed/emerging status, starting in March 2012. Therefore, companies could be re-classified from March 2014 at the earliest.
2. Non-constituents, which may become eligible from March 2012, upon introduction of the revised rules, will be included in the Global Index Series in March 2012. The past two years EBITDA for these companies has already been tested. A provisional list of FTSE Country Classification and FTSE EPRA/NAREIT Nationality to be considered as part of the March 2012 Annual review can be accessed via: Nationality List - Dec 2011.
3. Red Chips: As per the notice released on 17 March 2011, the ‘Red Chips’ in the FTSE EPRA/NAREIT Global Real Estate Index Series, which have remained in Hong Kong (Developed) since September 2009, will move to China (Emerging) in March 2012.
The three ‘Red Chip’ stocks which are expected to be reclassified as China as part of the March 2012 review, are:
• China Overseas Land & Inv (6192150)
• China Resources Land (6193766)
• Shenzhen Investment (6535261)
A definitive notice of constituent changes will be released as part of the March 2012 review.
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