The increased troubles in the U.S. housing environment have not, and will do little to impede the continued strong performance of U.S. REITs in 2007 as Fitch Ratings maintains a Positive Outlook for the sector, according to the rating agency in its latest REIT Scorecard. “Continued economic expansion should remain a catalyst for higher occupancies and rental rates for many companies across the spectrum of property types,” said managing director and REIT group head Steven Marks. “Intense investor interest in real estate is also providing REITs a great deal of liquidity throughout all levels of the capital structure, leading to cheaper financing and a strong asset disposition market.” The intense competition has also made property acquisitions more expensive, according to Marks, which will pose a challenge for REIT managements to find new ways to grow their portfolios and cash flow. This will likely pave the way for more joint-venture (JV) structures with institutional partners this year, Fitch said.
Rating upgrades for both office and retail REITs are a possibility for this year as Fitch projects Positive Rating Outlooks for multifamily, lodging and office REITs, along with Stable Outlooks for the industrial, retail, health care and mortgage REIT spaces. Perhaps the only blemish for the sector, according to Marks, may be residential mortgage REITs. “Fitch is increasingly concerned by the underlying credit quality of the mortgage assets and the operating performance of subprime residential mortgage REITs. We believe that liquidity and capital to these companies may decline as a result of the negative trends in the sector,” said Marks. Fitch’s report, 2007 REIT Scorecard, is available on the Fitch Ratings web site at http://www.fitchratings.com.