Fitch: U.S. Equity REIT Liquidity Remains Solid; Property Sectors Shift

NEW YORK--()--Liquidity remains stable for U.S. equity REITs even as spreads inch slightly higher and some shifts among property types emerge, according to Fitch Ratings' REIT Liquidity Update.

The median liquidity coverage ratio for select U.S. equity real estate investment trusts (REITs) is 1.4x for the Oct. 1, 2014 to Dec. 31, 2016 period. Unsecured bond issuance year-to-date has already surpassed full year 2013 issuance, and common stock issuance has also been strong, resulted in low unsecured credit facility utilization. Over 80% of the 63 issuers analyzed by Fitch are well poised to address upcoming maturities and capital expenditures.

'Gradually rising interest rates against a backdrop of solid growth would have only a limited impact on REITs as top line growth should offset rising cost of debt capital,' said Senior Director Sean Pattap. Fitch notes that weak macro data from Germany and Japan along with a potential slowdown in China could filter through to the U.S. economy and negatively affect equity REITs by pushing spreads wider and de-stabilizing their liquidity positions.

Healthcare remains the property sector leader, due in part to low projected capital expenditures, with a median liquidity ratio was 1.8x. However, announced transactions by several healthcare REITs expected to close over the next two quarters may result in higher revolving credit facility borrowings. From 2011 to 2013, industrial was the property sector liquidity laggard due in part to elevated near-term debt maturities. However, as of Sept. 30, 2014, industrial had the second highest median liquidity coverage among the major property sectors at 1.6x, driven by proactive liability management and recent capital market issuance from several industrial REITs.

Year-to-date, REITs have issued $21.8 billion of common stock and $30.3 billion in unsecured bonds. The median percentage drawn from U.S. equity REITs' revolving credit facilities was 10.4% as of Sept. 30, 2014, down from 13.3% as of year-end 2013 and the mid 20% range from 2011-2012. Bond investors have supported inaugural and seasoned borrowers alike, enabling issuers to pay down revolver borrowings via historically low all-in unsecured bond offering yields.

Despite low yields, U.S. equity REIT spreads started 2014 just above 130 bps but declined to approximately 110 bps from early April through mid-September. However, spreads widened during October and have been around 125 bps, increasing REITs' cost of debt capital.

The full report, '3Q14 U.S. Equity REIT Liquidity Update: Shifting Sands', is available at 'www.fitchratings.com'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research: Related Research:

--Fitch Fundamentals Index - U.S. Index Trend Analysis - 3Q14 (October 2014)

--U.S. Corporates: Implications of an Interest Rate Shock (October 2014)

--Trends in U.S. Equity REITs' Development Pipelines: Activity Accelerates (October 2014)

--U.S. Equity REITs: When Dividends Affect Ratings (September 2014)

--Global Economic Outlook (September 2014)

--2014 Midyear Outlook: U.S. Equity REITs (June 2014)

--2Q14 U.S. Equity REIT Liquidity Update: A Banner Year (so Far) (August 2014)

--Corporate Rating Methodology (May 2014)

--Rating U.S. Equity REITs and REOCs Sector Credit Factors (February 2014)

--Trends in U.S. Equity REITs Unsecured Lines of Credit - Bigger, Cheaper, Longer (February 2014)

--Treatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit Analysis (December 2013)

--Recovery Ratings and Notching Criteria for Equity REITs (November 2013)

Applicable Criteria and Related Research: 3Q14 U.S. Equity REIT Liquidity Update: Shifting Sands

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=816989

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Contacts

Fitch Ratings
Sean Pattap
Senior Director
+1-212-908-0642
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Boris Alishayev
Associate Director
+1-212-612-7880
or
Steven Marks
Managing Director
+1-212-908-9161
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Sean Pattap
Senior Director
+1-212-908-0642
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Boris Alishayev
Associate Director
+1-212-612-7880
or
Steven Marks
Managing Director
+1-212-908-9161
or
Media Relations:
Sandro Scenga, New York, +1 212-908-0278
Email: sandro.scenga@fitchratings.com