Is the Trump administration the leading risk factor for REITs? Maybe not, yet a sizable percentage — 44% — of the 100 largest public REITs cite concerns related to the new administration in their latest 10-K filings, according to BDO LLP. Twenty-six of the top 100 mention Trump by name in their filings, a total of 59 times.
Although the new administration per se didn’t top REITs’ concerns as measured by the 2017 BDO RiskFactor Report for REITs, the uncertainty around the timing and content of federal policy changes figures prominently in the conversation. In their 10-Ks, some REITs cited specific shifts in legislative and regulatory priorities that could have a material effect on their business, including travel restrictions, tax reform and the ongoing efforts to repeal and replace the Affordable Care Act.
“Beyond these high-profile initiatives, regulatory, tax and accounting changes that could impact REITs’ operations are already underway — and REITs are taking note in their disclosures to shareholders,” according to BDO. The firm’s report further notes that “competition for assets at lucrative prices, the anticipation of tax reform and the likely drumbeat of interest rate hikes through the rest of 2017 could be peppering the market with uncertainty and serving up unappetizing borrowing cost increases for REITs.”
Topping the list of risk factors are two macroeconomic concerns: general economic conditions, including disruptions in the financial markets; and access to capital, financing and liquidity. The latter moved up in the rankings from 2016, with citations by all 100 of the top publicly traded REITs, compared to 96% of them in last year’s RiskFactor report and 93% in 2014. In particular, REITs are bracing for the impact of multiple interest rate increases, which may lead to restricted access to equity and more expensive debt in the long term.