US equity REITs enjoying banner year for capital raising, says Fitch
The median liquidity coverage ratio for select US equity real estate investment trusts (REITs) is 1.3x for the 1 July 2014 to 31 December 2014 period, flat year-over-year, according to Fitch Ratings' REIT Liquidity Update.
Record capital raising in the unsecured bond and common equity markets so far in 2014 has resulted in healthy dry powder from revolver availability and nearly all issuers being well-poised to address upcoming maturities and capital expenditures.
Year-to-date, REITs have issued USD22.9 billion of common stock and USD28.0 billion in unsecured bonds, both of which are well on track to exceed records set in 2013. Bond issuance has spanned the credit curve and duration points along the yield curve and included traditional and convertible notes and so-called green bonds. REITs have entered into USD6 billion of term loans year-to-date, which if sustained would exceed the USD11.3 billion record set in 2012. Only the preferred stock market is lagging below 2013 levels.
The median percentage drawn from US equity REITs' revolving credit facilities was 8.9 per cent as of 30 June 2014, down from the mid 20 per cent range observed from 2010 to 2012. Bond investors have supported inaugural and seasoned borrowers alike, enabling issuers to pay down revolver borrowings. In addition, after starting 2014 just above 130 basis points, US equity REIT spreads to worst have sustained around 110 bps since early April, indicative of increased demand for REIT bonds.
Geopolitical risks remain elevated and it remains to be seen whether the flight to quality for safe haven assets such as US Treasuries and investment grade US bonds will sustain indefinitely or whether such risks will lead to spread widening. Normalising monetary policy coupled with geopolitical uncertainties could lead to volatility in market pricing and therefore a de-stabilisation of US equity REIT liquidity positions.
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