Fitch: 'A' Ratings Mean Higher Equity Returns for U.S. REITs
NEW YORK -- June 3, 2013
U.S. equity real estate investment trusts (REITs) with public credit ratings
in the 'A' category have track records of superior equity returns when
compared with lower-rated or unrated issuers, according to a Fitch Ratings
comparison. Benefiting from a lower cost of unsecured debt, 'A' category
issuers outperform their peers for bondholders and shareholders alike. This
outperformance may be attributable to myriad factors such as stronger access
to capital, lower leverage, quality of management and/or strategy execution
resulting in sustained portfolio performance.
For the periods when REITs were either upgraded to or initiated at the 'A'
rating category to the present, annual total equity returns have averaged
39.9% compared with the SNL U.S. equity REIT index at 18.5% during the same
periods. For Federal Realty Investment Trust (NYSE: FRT, Fitch IDR of 'A-'
with a Stable Outlook), Public Storage (NYSE: PSA, Fitch IDR of 'A+' with a
Stable Outlook) and Simon Property Group, Inc. (NYSE: SPG, Fitch IDR of 'A-'
with a Stable Outlook), these dates were April 26, 2012; November 17, 1995 and
January 12, 2007, respectively.
Bonds issued closest to the date of Fitch's upgrade to the 'A' category (FRT's
$250 million 3% senior notes due 2022 issued on July 16, 2012 and SPG's $650
million 5.25% senior notes due 2016 issued on Dec. 12, 2006) were priced on
average 25 basis points tighter than the broader REIT universe per the Merrill
Lynch REIT Index. These bonds are currently trading at 106% of par value on
average. Public Storage has no public bonds outstanding, as its capital
structure consists primarily of preferred and common equity.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article, which may include hyperlinks to
companies and current ratings, can be accessed at www.fitchratings.com. All
opinions expressed are those of Fitch Ratings.
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Senior Director, REITs
+1 212 908-0642
+1 212 908-9123
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Sandro Scenga, +1-212-908-0278 (New York)
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