Fitch: U.S. Equity REIT Liquidity Dulling from Golden to Gray
OREANDA-NEWS. Limited capital issuance could put pressure on U.S. equity REIT liquidity in the coming months, according to Fitch Ratings.
The meaningful decline follows a year of strong REIT liquidity and record capital issuance in 2015. The median liquidity coverage ratio for select U.S. equity REITs is 1.8x for the Jan. 1, 2016 -- Dec. 31, 2017 period with coverage improving year-over-year for all major property types, except industrial.
Bond market pricing proved volatile while with the majority of REIT common shares traded at a discount to NAV. This resulted in many REITs turning to bank capital in the form of unsecured term loans and revolving credit facilities as alternate sources of capital. These conditions have persisted into 2016.
Many REITs are still having difficulty selling their common equity at a cost-efficient level and risk premiums have widened significantly for REIT bonds at the onset of 2016 in response to macroeconomic uncertainty. Additionally, REIT-specific concerns such as the accounting-related senior management change at Brixmor Property Group and tenant concerns influencing healthcare REITs have only exacerbated the issue.
Foreign demand for U.S. commercial real estate will become more impactful driven in part by the 2015 changes to FIRPTA. This demand should provide REITs another source of buyers as dispositions continue to be a meaningful component of capital recycling and liquidity management in the midst of current debt and equity capital market conditions.