Fitch: REIT Status Generally Credit Negative

The election of real estate investment trust status under the federal tax code is "generally a modest credit negative," but revoking REIT status may not be a credit positive, according to Fitch Ratings.In a new report titled "Credit Implications of Electing REIT Status," Fitch says REITs are typically rated one or two notches below similar non-REIT entities. One of the reasons for this is that REITs must pay at least 90% of their taxable income in the form of dividends to shareholders, limiting their ability to retain capital, the rating agency says. This imposes on REITs a "more onerous" necessity to access the capital markets regularly for growth capital, Fitch says. "While electing REIT status is typically a credit negative, revoking REIT status may not necessarily be a credit positive, since the revocation of REIT status is usually triggered by a company's inability to operate under REIT parameters," said Steven Marks, a Fitch managing director and head of its REIT group. However, other factors may offset the constraints of REIT status, he said, noting that companies may choose it "to meet investor demand for yield-oriented stocks." The rating agency can be found online at http://www.fitchratings.com.