Fitch: Cash Flow Volatility a Secondary Issue for Most U.S. Equity REITs

 

07 11월, 23:37www.businesswire.com

NEW YORK--( BUSINESS WIRE )--Link to Fitch Ratings' Report: U.S. REIT Property-Level Volatility (Moderation is the Key)

 

 http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=721707

 

 Revenue changes are showing to be generally less cyclical and volatile relative to corporate issuers through this most recent economic cycle for U.S. equity REITs, according to Fitch Ratings in a new report.

 

 'The longer the term of the real estate lease, the less exposed landlords have been to operating cash flow volatility,' said Managing Director Steven Marks. That said, net operating income (NOI) volatility and correlation with the broader economy continue to be uneven across major REIT asset types.

 

 Multifamily REITs are seeing the highest operating volatility as measured by same-store NOI change over the recent cycle. Though apartments have generally experienced the highest growth relative to retail, office and industrial properties, the short-term nature of leases was the primary driver for excess volatility.

 

 Another asset class worth highlighting is dispersion across the office sector. Office REITs with assets in high-barrier central business districts (CBDs) are seeing outsized growth with less volatility. Given this and better contingent liquidity provided by a deeper pool of secured lenders, office REIT ratings focused on CBD assets can generally maintain weaker credit metrics at a given rating level compared to those focused on more commodity-type suburban properties. Fitch's analysis indicated similar results within the retail space.

 

 Longer-term contracts allow REITs to generate recurring cash flows to cover fixed charges. However, this positive rating impact is largely offset by requirements to distribute at least 90% of taxable income as dividends to shareholders. As a result, 'REITs are unable to accumulate large cash balances to repay debt, thus driving heightened dependence on accessing the capital markets and constraining further upside to REIT credit ratings,' said Marks.

 

 Fitch's report, 'U.S. REIT Property Level Volatility', is available at ' www.fitchratings.com ' or by clicking on the above link.

 

 Additional information is available at ' www.fitchratings.com '.