While Fitch does not see any immediate concerns with regard to the liquidity profiles of many REITs within Fitch's rated universe, the company views the sector more cautiously as the real estate debt capital markets, specifically unsecured debt and CMBS remains gripped by uncertainty and inactivity. "Liquidity is still adequate for many equity REITs as sources of liquidity less primary uses of liquidity are still generating a surplus even as the capital markets have remained inhospitable to virtually all issuers," says Steven Marks, managing director and US REIT Group head.
Marks explains that "however, sustained contraction in liquidity in these markets, combined with unattractive costs to issuers, will likely continue to have consequences for REITs' ability to access capital." In the report, Fitch defines sources of liquidity as cash, available credit facility borrowings and retained cash flows from operating activities, and defines uses of liquidity as near-term debt maturities and future capital expenditure spending.
The report noted that many equity REITs are well positioned to address short-term cash requirements, as "many REITs have availability of committed amounts under their credit lines before violating a financial covenant contained either in the companies' unsecured bond indentures or credit line agreements."
Although the report said that several REITs will have notable liquidity shortfalls, the report did say that large REITs such as Boston Properties Inc. and Vornado Realty Trust remain well positioned to weather continued stress in the financial markets, nothing that "these companies benefit from strong and stable operating liquidity and, in some cases, meaningful amounts of capacity in the form of unsecured revolver availability."
A recent report from FBR Capital Markets, which highlighted the Manhattan office market in particular and attempted to drill down which REITs are most susceptible to softening fundamentals, placed both Boston Properties and Vornado Realty Trust as a "moderate risk." The reported also noted that many investors are shying away from New York-exposed office REITs altogether due to fears rising over possible default among some financial tenants in Manhattan.
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
