Fitch: 'A' Ratings Mean Higher Equity Returns for U.S. REITs

U.S. equity real estate investment trusts (REITs) with public credit ratings in the 'A' category have track records of superior equity returns when compared with lower-rated or unrated issuers, according to a Fitch Ratings comparison. Benefiting from a lower cost of unsecured debt, 'A' category issuers outperform their peers for bondholders and shareholders alike. This outperformance may be attributable to myriad factors such as stronger access to capital, lower leverage, quality of management and/or strategy execution resulting in sustained portfolio performance.

For the periods when REITs were either upgraded to or initiated at the 'A' rating category to the present, annual total equity returns have averaged 39.9% compared with the SNL U.S. equity REIT index at 18.5% during the same periods. For Federal Realty Investment Trust (NYSE: FRT, Fitch IDR of 'A-' with a Stable Outlook), Public Storage (NYSE: PSA, Fitch IDR of 'A+' with a Stable Outlook) and Simon Property Group, Inc. (NYSE: SPG, Fitch IDR of 'A-' with a Stable Outlook), these dates were April 26, 2012; November 17, 1995 and January 12, 2007, respectively.

Bonds issued closest to the date of Fitch's upgrade to the 'A' category (FRT's $250 million 3% senior notes due 2022 issued on July 16, 2012 and SPG's $650 million 5.25% senior notes due 2016 issued on Dec. 12, 2006) were priced on average 25 basis points tighter than the broader REIT universe per the Merrill Lynch REIT Index. These bonds are currently trading at 106% of par value on average. Public Storage has no public bonds outstanding, as its capital structure consists primarily of preferred and common equity.

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.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. 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.