Fitch Analyst Says REITs Looking to Reduce Cost of Financing

Steven Marks, managing director at Fitch Ratings, joined REIT.com for a video interview at REITWeek 2017: NAREIT’s Investor Forum at the New York Hilton Midtown.

Marks commented on a recent report by Fitch into REITs’ bank borrowing exposure. Fitch looked at the sum of withdrawals on revolving lines of credit and outstanding term loans, comparing them with the total amount of debt outstanding. At the end of 2009, the level was about 10 percent. By the first quarter of 2017, it had risen to 18 percent, he noted.

Part of the reason for the increase is that banks have been pushing term loan products to REITs because it helps them from a capital charge perspective, according to Marks. REITs like term loans because they are looking for ways to reduce the cost of financing as it becomes more challenging to grow organically, he said.

Marks also noted that retail REITs are “generally doing the right thing” in terms of ensuring asset locations are relevant for both tenants and customers.

Industrial REITs, meanwhile, are finally enjoying their “day in the sun,” according to Marks. While supply levels have increased, there has also been robust space absorption in the sector. As a result, occupancies are increasing on the margin, he noted.