Business & Finance
Business and Finance
Business and Finance
Fri, January 16, 2009 Fitch: U.S. REIT Common Stock Dividends Are A Credit Positive
NEW YORK--([ BUSINESS WIRE ])--The recent announcement by Vornado Realty Trust (NYSE: VNO) that it will pay its upcoming quarterly dividend through a combination of cash, not to exceed 40% in the aggregate, and common shares, signals that other U.S. REITs may adopt a similar dividend policy, according to Fitch Ratings. Fitch believes that electing to pay dividends with cash and stock is a positive for REIT bondholders because it bolsters REITs' liquidity profiles, which is critical as the capital and commercial real estate markets remain under pressure. However, REIT stock prices have already declined substantially in value during the current recession, and stock dividends are likely to further dilute existing shareholders, according to Fitch.
On Jan. 14, 2008, VNO announced that in accordance with Internal Revenue Service procedures, it will ask its shareholders to elect to receive a dividend all in cash or all in common shares. If more than 40% cash is elected, the cash portion will be prorated. Shareholders who do not make an election will receive 40% in cash and 60% in common shares, but VNO has the right to pay the dividend entirely in cash. VNO notes that if this dividend policy continues throughout 2009, it will retain approximately $390 million of additional liquidity.
Prior to this announcement, Fitch viewed VNO's liquidity position as strong, principally due to the company's large cash balance and significant availability under its unsecured revolving credit facilities as of the end of the third quarter of 2008. Fitch believes that VNO's sources of liquidity will be further strengthened as a result of the new dividend policy, providing further support to address its funding needs in 2009, including secured and unsecured debt maturities and capital expenditures across the real estate portfolio.
More broadly, in the event that other REITs adopt a cash and stock dividend policy, Fitch will examine the effect of such policies on a case-by-case basis and the extent to which they bolster liquidity. "Stock dividends strengthen REITs' risk-adjusted capitalization and liquidity, which is clearly a positive for REIT bondholders," said Steven Marks, Managing Director and U.S. REITs group head. "Our focus from a credit perspective will be on how strong a REIT's liquidity position is both before and after the adoption of such a policy and the way that such a policy impacts leverage," said Marks.
For additional details on Fitch's views regarding REIT liquidity, please see 'U.S. REIT Liquidity - On Thinning Ice', which is available at [ www.fitchratings.com ] under the following headers:
Sectors >> Financial Institutions >> REITs >> Filter by Research >> Special Report
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, [ 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.
