OREANDA-NEWS. US REIT capital markets access is more nuanced - and generally weaker - than headline issuance and liquidity trends suggest, according to Fitch Ratings. Unsecured debt capital market access remains bifurcated between the 'haves' and 'have less,' but for different reasons than last year.

Absolute and relative REIT liquidity is strong, but less capital issuance breadth in terms of number of transactions and issuers and greater reliance on bank unsecured revolver and term loan borrowings reveal weaker trends beneath the surface.

Issuance size and frequency - the larger and more often, the better - have conditioned debt capital access during 2016, whereas ratings and seasoning were atop investors' minds last year. Investors have voiced the importance of offering size, and hence trading liquidity, in meetings with Fitch, in the context of higher regulatory capital requirements that have made banks less willing to inventory bonds to facilitate market making.

In today's market, issuance sizes of roughly $350 million or more are generally needed to attract public bond investors. Previously, the unchanged $250 million index-eligible minimum bond issuance size was generally adequate for best execution pricing. REIT bond investors also stress the importance of regular issuance expectations to justify the coverage time and effort.

Recent issuances support our view that REIT bond investors are placing a primacy on transaction liquidity over ratings or seasoning. Sovran Self Storage ('BBB' / Rating Watch Negative) re-opened the public unsecured bond market for inaugural issuers in June 2016, placing $600 million of 10-year notes at T+195 basis points. Care Capital Properties ('BBB-' / Stable), another inaugural issuer (144A) in a less traditional asset class, issued $500 million of 10-year notes at T+373.5 basis points in July 2016.

Recent issuances by VEREIT and Brixmor Property Group ('BBB-/Stable), although not inaugural public deals, offer additional evidence of liquidity being prioritized over ratings or seasoning. Both issuers completed sizable offerings following accounting scandals that are in varying stages of resolution by new management teams.

Some REITs selectively returned to private placement unsecured bonds instead of risking a potentially inhospitable public REIT bond market. Fitch believes several credit benefits stem from the flexibility provided by private placement issuance, including delayed draw features and term flexibility, which can help REITs better balance maturities.