Fitch: Liquidity Remains Tenuous for U.S. Equity REITs, but Positives Emerge

NEW YORK--(BUSINESS WIRE)--Maintaining sufficient liquidity remains the primary credit risk to U.S. equity real estate investment trusts (REITs) in spite of recent opportunistic actions to reduce financial pressures, according to Fitch Ratings in a new special report.

'Many REITs have taken advantage of opportunities to bolster liquidity,' said Steven Marks, Managing Director and REITs Group Head. 'However, Fitch maintains a circumspect view towards REIT liquidity because these opportunities are company-specific and have not translated to a sector-wide trend.'

However, recent improvements in financial markets indicate some positive momentum. Four Fitch-rated REITs accessed the unsecured debt market since March at yields between 7% and 10.75%. In addition, several REITs have executed bond tender offers in recent months, while common equity issuances of over $12 billion have enabled REITs to reduce leverage and bolster liquidity since the beginning of 2009.

Nonetheless, challenges remain for equity REITs, including tenuous financing available across the capital markets, deteriorating performance in commercial real estate and the sizeable overhang of debt maturities for equity REITs looming in 2011. Fitch also notes that limited visibility regarding net operating income capitalization rates continues to stress commercial property values, constraining transaction activity and the magnitude of institutional investor secured debt lending volume.

Major challenges ahead noted by Fitch include likely reduced revolving credit facility commitments, limited unsecured bond issuances, a near-dormant U.S. CMBS market, reduced bond tender activity, and uncertainties regarding the recent re-equitization wave in the REIT sector.

'There are no bright lines regarding mapping the magnitude of a liquidity surplus or shortfall to a specific Issuer Default Rating,' said Marks. 'Having said that, certain recent rating downgrades by Fitch have been driven by weakening liquidity profiles, while further downgrades may occur in instances where liquidity shortfalls become a growing concern.'

'U.S. Equity REIT Liquidity Update: Hold the Applause' is available at www.fitchratings.com under the following headers:

Financial Institutions >> REITs >> Special Reports

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