DOW JONES NEWSWIRES
With the unsecured bond market closed for nearly all issuers,
U.S. real estate investment trusts are using a variety of tools to
maintain adequate liquidity, Fitch Ratings said in a report about
the industry Thursday.
Ratings agencies have narrowed their focus on REITs' liquidity
and balance sheets, as the group has been slammed by the global
recession. The real-estate market has struggled due to tighter
credit, high foreclosure rates and rising unemployment.
Fitch said Fannie Mae (FNM) and Freddie Mac (FRE) financing
remains a key source of capital to the multifamily sector, but
REITs are facing challenges to obtain the financing from the
struggling mortgage giants, which were seized by the government in
September.
Fitch said many REITs have repurchased unsecured bonds in the
open market at discounts but said that while the investments could
help reduce leverage, if large enough, they could also weaken
liquidity if longer-dated bonds are repurchased.
The share prices of REITs have tumbled recently, forcing them to
suspend or cut dividends or to pay part of their dividends in
stock. Such measures have come as many REITs are trying to save
cash to pay down debt and strengthen their balance sheets. Fitch
said some of the REITs are choosing to pay stock dividends to
preserve capital by necessity while others are doing so by
choice.
Looking ahead, Fitch Managing Director and U.S. REIT Group Head
Steven Marks said "revolving credit facility capacities will remain
the primary source of liquidity for REITs."
"Financing alternatives to the unsecured bond market such as
secured term facilities may also become more prevalent if new
unsecured bond issuance pricing remains unattractive," Marks
added.
Some REITs have utilized secured term loans with their existing
bank lending groups, and Marks said the likelihood of other REITs
following suit rises as the recession and poor housing climate
continue.
-By John Kell, Dow Jones Newswires, 201-938-5285, john.kell@dowjones.com