Fitch: More Share Buybacks, and Risk, May be Coming for U.S. REITs

Tue Apr 29, 2014 10:00am EDT

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(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Are REIT Share Buybacks Looming? here NEW YORK, April 29 (Fitch) Share buybacks are becoming more appealing for U.S. equity REITs, though they come with additional risks over time for bondholders, according to Fitch Ratings in a new report. REIT stocks outperformed broader indices during this past quarter. That said, trading levels are generally below net asset value, making share repurchases an intriguing use of capital, a trend that Fitch views negatively according to Director Reinor Bazarewski,. 'Share repurchases may be a plus for REIT net asset values in the short-term, but over time the resultant increase in leverage could impair credit quality,' said Bazarewski. 'It is important to note that current REIT leverage is above levels seen at the end of 2006, just before share buybacks spiked sharply during the last credit cycle.' The REIT structure restricts share buybacks given the limited ability for REITs to retain cash flows. Fitch expects these structural considerations to limit large stock repurchases over the longer term. Optimistically, 'The severe economic downturn and subsequent dilution via en masse deleveraging may also have permanently changed the mindsets of REIT managements to maintain greater fiscal responsibility,' said Bazarewski. 'REIT Share Buybacks More Palatable: How Long do Memories Last?' is available at 'www.fitchratings.com' or by clicking on the above link. Contact: Reinor Bazarewski Director +1-212-908-0291 Fitch Ratings, Inc., 33 Whitehall Street, New York, NY Steven Marks Managing Director, Head of U.S. REITs +1-212-908-9161 Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: sandro.scenga@fitchratings.com. Additional information is available at 'www.fitchratings.com'. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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