Fitch: Conditions for U.S. REIT Privatizations Similar to Last Wave

Link to Fitch Ratings' Report: U.S. Equity REITs: The Privatization Fuse Is Lit (Capital Availability and Relative Pricing Reminiscent of Last Wave)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865364

Recently announced acquisitions of Excel Trust and Associated Estates may be harbingers of the next wave of U.S. REITs going private in a decade, according to Fitch Ratings in a new report.

The last meaningful period of REIT privatizations occurred between 2005 and 2007, when 35 REITs were acquired representing $140 billion of enterprise value. Current market conditions are setting the stage for another round of acquisitions, potentially of a similar magnitude. If the last wave is any barometer, REIT public-to-private transactions could number 30 to 40 in the next few years, according to Director Britton Costa.

'Debt and equity capital are in ample supply, low-cost and less-discerning,' said Costa. 'Since REITs do not need to trade as wide of a discount or have as much growth for returns to pencil out in a low yield world, the number of candidates increases; more capital and more targets should mean more transactions.'

REITs may be more willing to entertain offers this time around given the sustained rally in fundamentals, share prices approaching all-time highs and above average multiples.

As to what this means for REIT bondholders, the outcome is mixed. REIT bondholder implications can include bond tenders, consent payments, and in the most extreme instance, credit downgrades. That said, REIT bonds enjoy some key structural attributes due to covenants in bond indentures. 'To achieve targeted returns via the use of leverage, private equity firms have little choice other than to negotiate with bondholders to tender for the bonds,' said Costa. 'These provisions have shielded many REIT bondholders from the fate of fixed-income investors in other corporate sectors'.

'U.S. Equity REITs: The Privatization Fuse is Lit' is available at 'www.fitchratings.com' or by clicking on the above link.

Additional information is available at 'www.fitchratings.com'.

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