Fitch: Cash Dividends a Possible 'Crystal Ball' into U.S. REITs

miércoles 24 de septiembre de 2014 13:25 GYT
 

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: U.S. Equity REITs: When Dividends Affect Ratings here NEW YORK, September 24 (Fitch) While appearing innocuous on the surface, the paying out of cash dividends can actually serve as a crystal ball of sorts in assessing the fundamentals and priorities of a U.S. equity REIT, according to Fitch Ratings in a new report. Cash dividends are an inherent characteristic of U.S. equity REITs due to minimum distribution requirements stipulated by the IRS. That said, dividend policies and, subsequently, payout ratios vary widely across issuers and sectors due to both management policy and the predictability of operating cash flow. On the surface, REIT dividends are a fairly mundane topic. Yet, dividends and their corresponding payout ratios can shed meaningful light on operating fundamentals and how management teams accommodate various constituencies, both of which are important to unsecured bondholders and ratings, according to Director Britton Costa. 'Payout ratios close to or exceeding 100% indicate a REIT is not retaining cash flow for future liquidity needs and is accessing other forms of liquidity to pay dividends,' said Costa. 'A persistently high payout ratio could be a harbinger of negative trends in fundamentals or management priorities.' The good news is the REIT sector by and large has shown prudence with respect to dividend payouts. However, there are notable exceptions. One took place earlier this year when Fitch downgraded Liberty Property Trust one notch to 'BBB' based on the increase in Liberty's leverage against the backdrop of increased development risk and a persistent shortfall in the REIT's dividend coverage. Similarly, Fitch downgraded Mack-Cali in March to 'BBB-' in part because their dividend payout ratio has ranged from 96%-103% since 2011. Of the 64 REITs that Fitch analyzed for 2Q'14, only 39% paid out dividends per share above peak levels and 56% below, while 5% had payouts equivalent to peak levels. Additional information is available in Fitch's special report 'U.S. Equity REITs: When Dividends Affect Ratings', available at 'www.fitchratings.com' or by clicking on the above link. Contact: Britton Costa, CFA Director +1-212-908-0524 Fitch Ratings, Inc., 33 Whitehall Street, New York, NY Steven Marks Managing Director, 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.