REITs Praised for Balance Sheet Management
07/09/2014 | by Allen Kenney

Steven Marks, managing director with Fitch Ratings, joined REIT.com for a video interview during REITWeek 2014: NAREIT’s Investor Forum, held in New York.

While Fitch Ratings looks at REIT’s capital structures on a case-by-case basis, Mark said the ratings agency has found widespread improvement in REITs’ use of leverage.

“Virtually every REIT, regardless of asset class or property type, has been very proactive in managing their balance sheets,” he observed. On the whole, REITs have made moves to reduce leverage, build up access to capital and strengthen their liquidity, Marks noted.

Marks cited multifamily REITs as having done a particularly good job getting their balance sheets in order, in part by obtaining access to unsecured debt capital. Doing so has pared down their reliance on government-sponsored enterprises, according to Marks.

Balance sheet management was a major theme of Fitch Ratings’ mid-year report on REITs. Companies should have good access to capital and liquidity going forward, according to Marks. He also said Fitch Ratings expects fundamentals for REITs to remain “strong to very strong.”

On the other hand, Fitch Ratings did express concern over potential exposure to development projects.

In the next six months, Marks said he will be looking to see if REITs use stock buybacks as a strategy to raise asset prices. That could have implications for liquidity and leverage, he noted.

“We don’t see this being a widespread theme generally across the sector,” he said. “It’s something that we don’t view as a huge negative in the sector, but it’s something that we’re definitely paying more attention to.”