Fitch: REIT Capital Access Divided between 'Haves' & 'Have Less'

NEW YORK--(BUSINESS WIRE)-- Link to Fitch Ratings' Report: What Investors Want to Know: U.S. REITs (Questions and Takeaways Post-NAREIT Conference and Investor Meetings)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=884894

US REIT capital markets access is more nuanced - and generally weaker - than headline issuance and liquidity trends suggest, according to Fitch Ratings. Unsecured debt capital market access remains bifurcated between the 'haves' and 'have less,' but for different reasons than last year.

Absolute and relative REIT liquidity is strong, but less capital issuance breadth in terms of number of transactions and issuers and greater reliance on bank unsecured revolver and term loan borrowings reveal weaker trends beneath the surface.

Issuance size and frequency - the larger and more often, the better - have conditioned debt capital access during 2016, whereas ratings and seasoning were atop investors' minds last year. Investors have voiced the importance of offering size, and hence trading liquidity, in meetings with Fitch, in the context of higher regulatory capital requirements that have made banks less willing to inventory bonds to facilitate market making.

In today's market, issuance sizes of roughly $350 million or more are generally needed to attract public bond investors. Previously, the unchanged $250 million index-eligible minimum bond issuance size was generally adequate for best execution pricing. REIT bond investors also stress the importance of regular issuance expectations to justify the coverage time and effort.

Recent issuances support our view that REIT bond investors are placing a primacy on transaction liquidity over ratings or seasoning. Sovran Self Storage ('BBB' / Rating Watch Negative) re-opened the public unsecured bond market for inaugural issuers in June 2016, placing $600 million of 10-year notes at T+195 basis points. Care Capital Properties ('BBB-' / Stable), another inaugural issuer (144A) in a less traditional asset class, issued $500 million of 10-year notes at T+373.5 basis points in July 2016.

Recent issuances by VEREIT and Brixmor Property Group ('BBB-/Stable), although not inaugural public deals, offer additional evidence of liquidity being prioritized over ratings or seasoning. Both issuers completed sizable offerings following accounting scandals that are in varying stages of resolution by new management teams.

Some REITs selectively returned to private placement unsecured bonds instead of risking a potentially inhospitable public REIT bond market. Fitch believes several credit benefits stem from the flexibility provided by private placement issuance, including delayed draw features and term flexibility, which can help REITs better balance maturities.

For more information, please see our special report titled, "What Investors Want to Know: U.S. REITs; Questions and Takeaways Post-NAREIT Conference and Investor Meetings," which is available on our website at www.fitchratings.com.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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View source version on businesswire.com: http://www.businesswire.com/news/home/20160718005889/en/

Fitch Ratings
Britton Costa, CFA
Director, REITs
+1 212-908-0524
Fitch Ratings
33 Whitehall Street
New York, NY
or
Steven Marks
Managing Director, REITs
+1 212-908-9161
or
Kellie Geressy-Nilsen
Senior Analyst
Fitch Wire
+1 212-908-9123
or
Media Relations:
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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