04/03/2013 | By Allen Kenney
Luke Zubrod, director of derivatives regulatory advisory services with Chatham Financial, joined REIT.com for a video interview at REITWise 2013: NAREIT’s Law, Accounting and Finance Conference in La Quinta, Calif.
Zubrod talked about some of the latest developments for REITs in the capital markets. Chatham Financial recently published its annual REIT capital survey for 2013. Zubrod noted that he left his position working with REITs on hedging strategies four years ago for his current position working on regulatory reform issues for derivatives. In the subsequent four years, the differences in the REIT market “couldn’t be starker,” according to Zubrod.
“Today the story is one of overwhelming health,” Zubrod said. “For the first time in four years, we had 22 percent of respondents who planned to actually increase leverage this year. By no means is that the dominant theme of REITs, but I think it’s quite indicative of just how far we’ve come. You have some who are saying, ‘Not only are we healthy, but we can support more leverage.’ I think that speaks to an ability to transition from defense to offense.”
Zubrod also discussed REITs’ dividend policies. He noted that nearly 80 percent of survey respondents indicated that they plan to increase dividends this year. “Just another hallmark of health,” he said.
Zubrod discussed REITs’ use of credit financing as well.
“For those who are renewing their lines of credit this year, everyone expects, for the most part, to increase the size of their lines of credit and increase the term of the line of credit relative to what they’ve historically been able to achieve,” he said.
REITs are also anticipating that they will have tighter borrowing spreads and less restrictive covenants, according to Zubrod.
Zubrod offered his thoughts on some of the more pertinent derivatives issues.
“There has been a three-year period of regulatory rulemaking,” he said. “I think that during that time a lot of people have—justifiably—fallen asleep and are focused on other things. In reality, with the way the regulations have come out, REITs and a lot of other end users do have a lot of compliance obligations that they need to be focused on in order to continue managing their risk.”