12/18/2012 | by
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REITs' Capital Structures Improved in 2012

Beth Campbell, director with credit ratings agency Standard and Poor's, joined REIT.com for a video interview at REITWorld 2012: NAREIT's Annual Convention for All Things REIT at the Manchester Grand Hyatt in San Diego.

For ratings agencies, Campbell said one of the dominant issues for REITs in 2012 has been "unprecedented access to attractively priced capital."

"What that has meant from a ratings perspective is we have seen companies de-leverage through issuing equity and through refinancing debt. What that's also done is lowered their cost debt, so we've seen fixed charge coverage, debt service coverage and dividend coverage improve."

As a result, she said that has enabled many REITs to meet their objective of asset recycling by selling weak assets in their portfolios without having an overly diluted impact.

In terms of Campbell's overall outlook on REITs, she said they have "really reached a cruising altitude" when it comes to their capital structures. She said REITs have been able to issue equity, refinance pricy debt and lengthen their debt maturity schedules. Many REITs have also recast their credit facilities, according to Campbell.

"From a leverage perspective, we believe most REITs are at their target levels," she said.

However, she discussed some of the challenges in store for REITs in 2013.

"On the one hand, it will be trying to find attractive and accretive opportunities without increasing the business risk profile," she said. She added that another challenge is in relation to seeing REITs continue to build their capital cushions ahead of the next downturn. "What we really don't want to see is REITs raising their dividend too soon."

S&P expects CMBS market volume to continue to increase, but at a gradual pace.

"The health of the existing CMBS product is going to be a little bit improved as well," she said. "The existing 2007 vintage maturities will essentially be in the rearview mirror, so looking at the seasoned, existing CMBS, it should start to improve from a credit perspective."