Fitch: Maintaining Liquidity A Top Focus For US REITs

   DOW JONES NEWSWIRES 
 
 

With the unsecured bond market closed for nearly all issuers, U.S. real estate investment trusts are using a variety of tools to maintain adequate liquidity, Fitch Ratings said in a report about the industry Thursday.

Ratings agencies have narrowed their focus on REITs' liquidity and balance sheets, as the group has been slammed by the global recession. The real-estate market has struggled due to tighter credit, high foreclosure rates and rising unemployment.

Fitch said Fannie Mae (FNM) and Freddie Mac (FRE) financing remains a key source of capital to the multifamily sector, but REITs are facing challenges to obtain the financing from the struggling mortgage giants, which were seized by the government in September.

Fitch said many REITs have repurchased unsecured bonds in the open market at discounts but said that while the investments could help reduce leverage, if large enough, they could also weaken liquidity if longer-dated bonds are repurchased.

The share prices of REITs have tumbled recently, forcing them to suspend or cut dividends or to pay part of their dividends in stock. Such measures have come as many REITs are trying to save cash to pay down debt and strengthen their balance sheets. Fitch said some of the REITs are choosing to pay stock dividends to preserve capital by necessity while others are doing so by choice.

Looking ahead, Fitch Managing Director and U.S. REIT Group Head Steven Marks said "revolving credit facility capacities will remain the primary source of liquidity for REITs."

"Financing alternatives to the unsecured bond market such as secured term facilities may also become more prevalent if new unsecured bond issuance pricing remains unattractive," Marks added.

Some REITs have utilized secured term loans with their existing bank lending groups, and Marks said the likelihood of other REITs following suit rises as the recession and poor housing climate continue.

   -By John Kell, Dow Jones Newswires, 201-938-5285, [e-mail]