Fitch lowers Equity Residential

Fitch Ratings said it downgraded ratings for Equity Residential Properties and ERP Operating LP because of the company's strategic shift in its capital structure and philosophy.

For Equity Residential, the issuer default rating was downgraded to A- from A, and the preferred stock rating and the convertible preferred stock rating were lowered to BBB+ from A-. For ERP Operating, the ratings were downgraded to A- from A.

The outlook is stable.

The agency said the company is buying back stocks with borrowed funds, which limits its financial and operating flexibility. What's more, the company's announcement that it would buy $500 million in company common stock, after a recent purchase of $585 million in company stock, reflects a change in the company's appetite for leverage and risk, Fitch said.

But the ratings also take into consideration the company's strong franchise, cash flows, management and corporate governance, Fitch added. The operating strategy is geared toward recycling capital into high-barrier-to-entry markets, which show relatively strong demand.

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