Text-S&P puts Commonwealth Reit on watch; subsidary IPO cited

Fri Dec 23, 2011 12:36pm EST

OVERVIEW
     -- CommonWealth REIT, a U.S. office REIT, announced on Thursday that its
newly formed Select Income REIT subsidiary has filed an IPO registration for
an initial public offering of shares. CommonWealth intends to contribute 253
properties, including some of its most stable assets, to the subsidiary, which
will invest primarily in net-leased, single-tenant properties.
     -- We placed our 'BBB' corporate credit rating on CommonWealth on
CreditWatch with negative implications, affecting approximately $3.5 billion
of rated obligations.
     -- We expect to resolve our CreditWatch listings after meeting with
management to assess the impact of the proposed transactions on CommonWealth's
business risk profile, and the likelihood that the REIT will be able to
improve debt coverage measures over the next 18 to 24 months to levels that
are more consistent with similarly rated office REIT peers.
NEW YORK (Standard & Poor's) Dec. 23, 2011--Standard & Poor's Ratings Services
today placed its ratings on CommonWealth REIT on CreditWatch with
negative implications.
"We placed our ratings on CommonWealth on CreditWatch after the REIT announced
on Dec. 22 that its newly formed Select Income REIT subsidiary has filed an
IPO registration for an initial public offering of shares," said credit
analyst Susan Madison. "CommonWealth intends to contribute 253 properties to
the subsidiary, and these properties include some of CommonWealth's most
stable assets."
To resolve the CreditWatch, Standard & Poor's will meet with management to
review the impact of the proposed transactions on CommonWealth's business risk
profile, given the very stable cash flow characteristics of the assets it
plans to contribute to Select Income REIT. We will also assess the impact of
potential dilution from the transaction on CommonWealth's coverage measures,
which are currently weak compared with other 'BBB' rated office REIT peers.
RELATED CRITERIA AND RESEARCH
     -- Industry Report Card:  North American REITs Hold Steady Amid Economic
Uncertainty, published Nov. 2, 2011.
     -- Methodology And Assumptions: Liquidity Descriptors For Global
Corporate Issuers, published Sept. 28, 2011.
     -- Key Credit Factors: Global Criteria For Rating Real Estate Companies,
published June 21, 2011.
     -- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded,
published May 27, 2009.
Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard & Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left
column.
Primary Credit Analyst: Susan Madison, New York (1) 212-438-4516;
                        susan_madison@standardandpoors.com
Secondary Contact: Elizabeth Campbell, New York (1) 212-438-2415;
                   elizabeth_campbell@standardandpoors.com
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