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Despite Rising Rates, REITs Took on More Debt in 2013

01/16/2014 | By Allen Kenney

Keven Lindemann, director of research firm SNL Financial’s real estate group, joined REIT.com for a video interview to look back at REITs’ activity in the capital markets in 2013 and look ahead to 2014.

Lindemann broke down the different sources of capital raises for REITs in 2013 and how they compared to the previous year. He described 2013 as an “active year.” REITs raised approximately $65 billion for the 12-month period, which essentially kept pace with 2012. The amount of preferred equity issued dipped from $9.1 billion in 2012 to $5.2 billion in 2013, while the amount of senior debt taken on climbed to $29.5 billion from $24.7 billion in 2012. Capital raised via common equity held steady: $32 billion in 2012 versus $30.8 billion in 2013.

Lindemann noted that the oft-discussed concerns last year over rising interest rates didn’t deter REITs from tapping the unsecured debt markets.

“Pricing is still pretty favorable compared to history,” he said. “We’ve seen (10-year Treasury interest rates) go up pretty dramatically, but, still, compared to historical periods, rates are generally still pretty darn low. The nature of the REIT structure is that you’re regularly back in the capital markets. Whether you’re using capital to finance growth or you’re refinancing debt, you’re going to be regularly back in the markets. I think a lot of these companies are still finding that despite the rise in interest rates, they’re still able to refinance at attractive rates. They’ve got higher-interest-rate debt coming in, and as long as there is an appetite among investors and they feel like they have a decent use of capital and it will keep their balance sheets clean, it makes a ton of sense for them to continue to tap the capital markets.”

Lindemann was asked about any potential fears of REITs adding too much leverage to their capital structures.

“The leverage levels are slightly higher when you compare them to the companies’ market” capitalization, he said. “The stocks didn’t perform as well as we had hoped last year, particularly compared to the broader equity markets. If you compare a company’s debt load to its market cap, it’s going to fluctuate based on what’s happening in the stock market. I think if you compare it to the value of the underlying assets, I don’t think there’s a lot of concern about excessive leverage there.”

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