Standard & Poor’s Ratings Services downgraded First Industrial Realty Trust Inc. deeper into junk territory, saying the industrial-property developer has inadequate liquidity and a small cushion under some credit facility covenants.
The move came a week after Fitch Ratings took the same action, citing similar concerns.
S&P analyst George Skoufis noted Thursday that First Industrial is relying on asset sales, secured-debt financings and a possible equity sale to meet its 2011 capital needs. The ratings agency added that the real-estate investment trust’s cash flow and coverage metrics are likely to remain under pressure, with a preferred-dividend suspesion not out of the question to meet debt covenants, the rating agency said.
The woes are occurring as the industrial real-estate market continues to see increasing vacancies and falling rents.
S&P lowered its ratings on First Industrial one notch to B+, four steps below investment grade. The outlook is negative, meaning further downgrade isn’t out of the question. Such a move would happen on a covenant breach or if the capital-raising environment worsens.
The credit rater noted that First Industrial, which has 781 properties in 28 states and one Canadian province, has good geographic and tenant diversity in its portfolio, which remains “largely unencumbered.” The company also has modest capital needs until a debt maturity in September 2011.
In April, the company reported a wider first-quarter loss on lower revenue and a writedown. Still, it said rents were bottoming in its markets and customer activity was increasing in response to the improving economy.
First Industrial’s shares traded at $4.32, down 16 cents, in late afternoon trading. The stock is down 15 percent this year, more than market averages.
