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Fitch Gives REITs Thumbs Up for 2015

Phil Hall
Dec 18, 2014
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Next year promises to be a strong year for the real estate investment trust (REIT) sector, according to a report issued by Fitch Ratings. The ratings agency gave the sector a “Positive Sector Outlook” for 2015, citing a series of factors to support its optimism on REIT vibrancy and viability.

“We believe portfolio focus and tactical diversification, lower risk growth strategies, good liquidity management, minimal share repurchase risk, and enhancements to capital access via at-the-market equity programs are key drivers and will continue for the foreseeable future,” Fitch Ratings said in a statement. “All of these elements are currently reflected in Fitch's issuer ratings and rating Outlooks. In many cases, issuers with Positive Rating Outlooks have embraced many of these credit-enhancing rating drivers. We are maintaining our stable Ratings outlook for the U.S. equity REIT sector for 2015, given expectations of continued solid liquidity driven by good access to capital, improving property-level fundamentals across nearly all asset classes and lower-risk strategies. These positive elements are offset by expectations of relatively unchanged leverage, a continued, slow economic recovery, and concerns regarding an increase in interest rates.”

Fitch added that stock buybacks should remain modest and represent the largest threat to the sector’s ability to maintain stable leverage metrics next year.

But U.S. REITs may have new competition in 2015 from south of the border. Latin America’s first mortgage REIT, Fideicomiso Hipotecario (FHipo), completed an initial public offering on the Mexican Stock Exchange on last month, raising more than $633 million – with nearly 60 percent coming from U.S. investors were from the United States. FHipo works with Infonavit, a government-sponsored lender that originates 70 percent of Mexican residential mortgages.

FHipo was created specifically to attract U.S. investors, according to Michael Fitzgerald, a partner in the New York office of the law firm Paul Hastings LLP. In an interview with the Florida-based Daily Business Review, Fitzgerald—who played a major role in the FHipo launch—acknowledged that it was crucial to play up the safety of this REIT’s, as well as its potential.

"We had to be able to get the underwriters and international investors comfortable with this product by comparing these assets with the mortgage-backed securities sold in the U.S.," said Fitzgerald.

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