SNL Analyst Sees Increase in REIT Debt Capital Raised in 2014

Keven Lindemann, real estate group director at SNL Financial, joined REIT.com for a video interview at REITWorld 2014: NAREIT’s Annual Convention for All Things REIT at the Atlanta Marriott Marquis.

Lindemann described the REIT capital markets in 2014 as “fairly active” on an historical basis.

Overall, the amount of REIT capital raised is about 10 percent lower in 2014 compared with 2013 at approximately $50 billion, Lindemann observed.  The mix of capital raising has also changed somewhat, he said. Equity capital is about $10 billion lower than last year, while debt capital has gained by approximately an equivalent amount.

“REITs still seem to have very ready access to the capital markets, it’s just that they are tapping different parts of the capital structure this year,” Lindemann said.

Lindemann also discussed the impact of pending interest rate increases on REITs’ interactions with the capital markets.

“I think that there is likely to be an emotional reaction when interest rates finally go up. REITs do get the double whammy with higher interest costs affecting their numbers and higher interest rates on bonds making them more competitive with REITs as income-oriented investment vehicles,” Lindemann said.

Companies, meanwhile, have done a good job of managing their capital structures and have hedged their debt exposures, Lindemann noted: “I expect that the uptick in debt issuance this year is probably a result of concerns about rising interest rates in the future.”

Lindemann said he expects a near-term negative impact on REIT stocks from rising interest rates,  but longer term, the impact will not be significant.

Looking at mergers and acquisitions (M&A) activity, Lindemann reported a slight uptick in the pace of deals in 2014 compared to last year. He acknowledged the difficulty in predicting M&A activity “because it typically only happens in the REIT space when you have a willing participant on both sides.”

However, he added that M&A activity will remain a possibility as long as REIT stock prices remain high. “Most REITs are trading at a premium to net asset value right now, so they have good currency, but it all hinges on their ability to find a willing partner on the other side,” Lindemann said.