Fitch: Cracks Emerging for U.S. Equity REIT Liquidity

NEW YORK--(BUSINESS WIRE)-- Link to Fitch Ratings' Report: 2Q15 U.S. Equity REIT Liquidity: Cracks Beginning to Show

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870433

Though still strong, liquidity is showing some initial signs of weakening for U.S. equity REITs, according to Fitch Ratings.

The median liquidity coverage ratio for select U.S. equity REITs is 1.2x for the July 1, 2015-Dec. 31, 2017 period. This represents a slight decline from the three prior comparable timeframes. 'Lack of access to the public unsecured bond markets is forcing potential first-time REIT issuers to consider alternative sources of capital and rely more heavily on term loans and revolving lines of credit,' said Managing Director Steven Marks. Further, 10-year bond maturities from relatively heavy 2007 issuance are a meaningful liquidity use for several issuers, pushing down liquidity coverage.

The push for inclusion of Change of Control (CoC) provisions in public bond indentures that began following Blackstone's announced acquisition of Excel Trust has been a major factor halting public unsecured bond issuance for potential first-time issuers. After a record setting first quarter of unsecured issuance, the second quarter slowed as investors and new issuers negotiate CoC provisions amidst an evolving macro backdrop. 'While seasoned REIT issuers have been unaffected, public issuance volume could decelerate even further should bond investors demand CoC provisions for seasoned, larger or higher-rated issuers,' said Marks.

The difference between REIT and Corporate bond spreads (as measured by yield to worst) has fallen to as low as three basis points in the past month after hovering in the 10-15 basis point range through early 2Q'15. Concerns surrounding monetary policy and global growth have impacted both corporate and REIT credit spreads; however corporate credit spreads have risen at more than twice the rate of REIT spreads since early 2014 due primarily to oil and gas issuers.

'2Q15 U.S. Equity REIT Liquidity Update: Cracks Beginning to Show', is available at 'www.fitchratings.com'.

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

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View source version on businesswire.com: http://www.businesswire.com/news/home/20150910006077/en/

Fitch Ratings
Zachary Klein
Associate Analyst
+1-212-908-0841
Fitch Ratings, Inc., 33 Whitehall Street, New York, NY 10004
or
Steven Marks
Managing Director
+1-212-908-9161
or
Media Relations:
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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