Fitch: Niche REITs Gain Popularity

  Fitch: Niche REITs Gain Popularity

Business Wire

NEW YORK -- June 5, 2013

The number of non-traditional real estate landlords that have converted to
real estate investment trust (REIT) tax status has increased over the past
several years despite inherent risks not present with core property types,
according to Fitch Ratings. Eight companies have converted or spun-off assets
into a REIT since 2010.

The primary benefits of electing REIT status are a tax savings at the
corporate level and higher earnings multiples for REITs than C-corps. The
inherent risks in these specialized companies would likely result in lower
credit ratings than a comparable REIT in a core property type with similar
credit metrics. Risks include the limited established secured lending/CMBS
market for the asset class, the depth of transaction market, and potential
alternate uses or non-traditional lease structures.

Additionally, long-term performance data on niche assets if often lacking. The
end result is likely lower leverage for a similar rating level when compared
with more traditional REITs and a focus on the unsecured debt markets as a
funding strategy.

Two recent examples of conversions are the 2012 conversion of American Tower
Corporation (AMT), an owner of owner, operator, and developer of wireless and
broadcast communications real estate, and the 2013 conversion of Corrections
Corporation of America, an owner and operator of privatized correctional and
detention facilities.

The list of candidates for REIT conversion or REIT initial public offerings is
expanding and includes owners of billboards, landfills, casinos, and document
storage facilities. Niche REITs often have differentiated risks that may be
less familiar to investors that concentrate in the traditional commercial
property sectors -- office, industrial, multifamily, retail, and healthcare.

Fitch takes a collaborative approach towards monitoring ratings for niche
REITs and considers credit factors that pertain to real estate fundamentals
(our U.S. REIT team) as well as factors that may be pertinent to the
individual issuer (our U.S. telecom and cable team in the case of AMT, our
U.S. lodging and leisure team in the case of CXW and our movie exhibitor and
charter school colleagues in the case of EPR Properties).

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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Contact:

Fitch Ratings
George Hoglund, CFA
Associate Director
REITs
+1-212-908-9149
or
Kellie Geressy-Nilsen
Senior Director
FitchWire
+1-212-908-9123
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Media Relations
Sandro Scenga
+1-212-908-0278
sandro.scenga@fitchratings.com