REIT Ratings Mixed in Latest Report
Fitch Ratings upgraded two real estate investment trusts (REITs) and downgraded as many in Q309, according to the latest “REIT Report Quarterly.” Recent improvements in financial markets indicate some positive momentum in REIT credit, Fitch wrote. Since March 2009, 11 Fitch-rated REITs accessed the unsecured debt market totaling $7.9bn and have executed bond tender offers of $3.4bn, as well as common equity issuances totaling $9.6bn, reducing leverage and increasing liquidity. Fitch revised UK REIT Brixton’s rating watch to positive from negative on the heels of a “firm offer” from the SEGRO this summer. The deal is expected to close by the end of 2010, but a material delay in SEGRO’s bid or its withdrawal, Fitch warned it would likely downgrade Brixton “by at least one notch.” Fitch also upgraded Ventas (VTR) and its subsidiaries Ventas Realty and Ventas Capital Corp. ratings outlooks from stable to positive, noting the healthcare REIT has a liquidity surplus of more than $850m from March 31, 2009 to Dec. 31, 2010. “The upgrades stem from Fitch’s view that Ventas’ liquidity, leverage, and unencumbered healthcare property operating metrics have improved to levels consistent with a triple-B rating following several capital markets transactions in a difficult market environment,” Fitch wrote. Fitch downgraded iStar Financial’s (SFI) issuer default rating (IDR) to double-C from B negative, unsecured revolving credit facilities to ‘C/RR5’ from ‘B–/RR4,’ senior unsecured notes to ‘C/RR5’ from ‘B–/RR4,’ convertible senior floating-rate notes to ‘C/RR5’ from ‘B–/RR4,’ and preferred stock to ‘C/RR6’ from ‘CC/RR6.’ The downgrades come over concerns the REIT’s weakened liquidity position will lead to some kind of default. “The quality of iStar’s loan portfolio continues to deteriorate. Given the reduced capital availability in the commercial real estate debt capital markets, Fitch expects a further increase in both provisions for loan losses and non-accrual loans for the remainder of 2009, the report said. “Capital access challenges and weakening property-level fundamentals have decreased the ability of iStar’s borrowers to repay loans, as many borrowers historically have refinanced their loans via the secured debt markets or have sold assets,” the report added. Fitch also downgraded the Brookfield Asset Management’s (BAM) IDR, its unsecured line of credit and its senior unsecured notes to triple-B from triple-B positive. “The lower ratings reflect Fitch’s concerns as to the overall sustainability of cash flows from BAM investments within its diversified business portfolio, particularly given its large exposure to commercial real estate and the wholesale power markets,” Fitch said. “Given that BAM’s investment positions are structurally subordinate to sizable levels of asset and subsidiary level financing in most of its business platforms, Fitch believes that cash flows from these investments are at greater risk given challenging market conditions in its key industries.” Fitch affirmed the ratings of 14 other REITs, but made outlook modifications from stable to negative on one of the 14, changes from negative to stable on two of the 14. The outlook on the entire REIT sector remains negative, because despite recent opportunistic actions to reduce financial pressures, liquidity concerns and deteriorating property fundamentals will continue to pose challenges, Fitch said. Write to Austin Kilgore.