REIT Credit Trends Look Stable as Fundamentals Remain Solid, Moody’s Says

Lori Marks, a senior credit officer at Moody's Investors Service, Inc., was a guest on Nareit’s REIT Report podcast, recorded in San Francisco during Nareit’s REITworld: 2018 Annual Conference.

Marks said overall credit conditions for REITs are “stable, as real estate fundamentals remain solid and REITs maintain healthy balance sheets.” Growth is slowing for many property types, she said, with REITs expected to generate low single digit net operating income (NOI) growth next year.

Moody’s expects REITs to maintain discipline as they seek investment opportunities, Marks said. “REITs are still able to issue unsecured debt at attractive, albeit higher, interest rates, and are also enjoying access to private capital as institutional demand for real estate remains strong,” she noted.

All told, “we believe REITs are better positioned today to deal with challenges that may arise in the broader macro environment,” Marks said.

In the retail sector, most REITs are adapting well to the challenging environment, according to Marks. She noted, however, that the Sears bankruptcy is likely to widen the performance gap between class A and class B and C properties.

Multifamily REITs, meanwhile, are faring well despite pressure from new supply in certain markets. Strong drivers of demand continue to sustain fundamentals, Marks said. She noted that new supply is peaking, which presents a better overall picture heading into 2019.

Turning to health care, Marks said Moody’s sees opportunities in multiple segments. Although skilled nursing has been facing headwinds, there have been some positive reimbursement developments, she pointed out.

As for senior housing, fundamentals are expected to strengthen once new supply is absorbed, Marks said. “As long as the REITs are investing in quality assets with strong operators, we think there are opportunities to profit in the senior housing space.”