NEW YORK--(BUSINESS WIRE)--Link to Fitch Ratings' Report: Don't Forget About Bondholders: Strong Governance for U.S. Equity REITs Benefits Unsecured Credit
Numerous U.S. REIT corporate governance attributes benefit bondholders, though there is one credit negative that investors should consider, according to Fitch Ratings in a new report.
The limited number of staggered boards, a high percentage of independent board members, experienced board membership, the widespread incorporation of credit metrics into management compensation, and board background diversity serve as positives for REIT bondholders. One credit negative, however, is the preponderance of REIT CEOs that serve as independent members of other boards.
Fitch has published this report in response to investor inquiries about recent investor activism in the U.S. equity REIT industry and corporate governance in the sector generally.
Of note when considering cliff risks to bondholders posed by investor activism, U.S. equity REITs have bond indentures that include financial covenants, limiting the extent that leveraged buyouts could negatively impact credit risk. Therefore, a more prominent risk to REIT bondholders is that activist investors could replace multiple board members, which could lead to decisions that weaken a REIT's credit profile within the confines of covenants. Such activism could be achieved via the authorization of aggressive share buybacks or via the embrace of risky strategies such as heightening speculative development.
'Don't Forget About Bondholders: Strong Governance for U.S. Equity REITs Benefits Unsecured Credit' is available at 'www.fitchratings.com' or by clicking on the above link.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: Related Research
--2014 Midyear Outlook: U.S. Equity REITs (June 2014);
--Corporate Rating Methodology (May 2014);
--1Q14 U.S. Equity REIT Liquidity Update: Marching to the Beat of the Same Drum (May 2014);
--Cap Rate Trends in a Post-QE World - What U.S. Equity REITs and REOCs are Saying (March 2014);
--Rating U.S. Equity REITs and REOCs - Sector Credit Factors (February 2014);
--U.S. REIT Property-Level Volatility - Moderation Is the Key (November 2013);
--Contemplating the REIT Credit Cycle (October 2013);
--Evaluating Corporate Governance (December 2012).
Applicable Criteria and Related Research:
1Q14 U.S. Equity REIT Liquidity Update: Marching to the Beat of the Same Drum
Cap Rate Trends in a Post-QE World (What U.S. Equity REITs and REOCs Are Saying)
Rating U.S. Equity REITs and REOCs (Sector Credit Factors)
U.S. REIT Property-Level Volatility (Moderation is the Key)
Contemplating the REIT Credit Cycle
Evaluating Corporate Governance
2014 Outlook: U.S. Equity REITs
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage