REITs Lean on Term Loans for Capital

Fitch says capital markets concerns belie strong fundamentals in most property types.

NEW YORK CITY—With capital issuance down in the face of still-turbulent bond market conditions, REITs have continued to rely heavily on term loans, Fitch Ratings said Friday. The headwinds from the capital markets belie the fact that commercial real estate fundamentals remain healthy, according to Fitch.

Year to date through May 24, US equity REITs had issued $31.4 billion of capital, including $7.7 billion of common equity, $900 million of preferred equity, $14.5 billion of unsecured bonds and $8.3 billion of unsecured term loans. That tally is down 11.6% from the year-ago period, but the term loan component is “on schedule to top the record set by the sector just last year,” Fitch says. The YTD total for term-loan issuance is already more than half the $15 billion raised via this method last year.