...Share Buybacks Becoming More Appealing... REIT equity prices traded at a 7.2% discount to net asset value (NAV) at Dec. 31, 2013 compared to flat at Dec. 31, 2012 and a 3.1% discount at Dec. 31, 2011. REIT stocks outperformed broader indices during first-quarter 2014; however, trading levels continue to remain below NAV and make share repurchases an intriguing use of capital. ...But Present Bondholder Risks: Fitch Ratings' negative view of share repurchases centers on their leverage-increasing qualities as measured by net debt/recurring operating EBITDA. Issuing new debt or selling assets to repurchase shares may be accretive to NAV in the short- term, but the resultant increase in leverage impairs credit quality. Lower Leverage Increasing the Temptation: Improved balance sheets since the recession have also made potential share repurchases easier for REITs to rationalize. The median debt/recurring EBITDA across U.S. REITs was 6.6x at Dec. 31, 2013, a reduction from 6.7x in 2011, 7.1x in...
