Fitch: US Equity REITs Adequate but Weakening

NEW YORK CITY-With access to capital by means of the US public debt and equity markets becoming more challenging for equity REITs over the last six months, equity REIT liquidity is adequate but weakening, according to a recent report from locally based Fitch Ratings. Unsecured REIT bond and preferred stock spreads remain near historically wide levels and REIT common stock prices have declined significantly from 2007 peaks as well.

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.