Fitch Sees Problems in Electing REIT Status

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NEW YORK CITY-The election of REIT status by companies under Section 856 of the IRS code is “generally a modest credit negative,” according to Fitch Ratings in a new report. Therefore, REITs are typically rated one or two notches lower than similar entities that have not elected REIT status, says Fitch in “Credit Implications of Electing REIT Status.”

REITs must pay at least 90% of their taxable income in the form of dividends to shareholders, Fitch comments. As a result of this requirement, REITs’ ability to retain capital is more restrained, and their necessity to regularly access the capital markets for growth capital is more difficult, when compared to that of comparable companies that have not elected REIT status.