Moody’s Analyst Says REITs Seeing Benefits of Investment-Grade Rating

Phillip Kibel, associate managing director at Moody’s Investors Service, joined REIT.com for a video interview at REITWorld 2014: NAREIT’s Annual Convention for All Things REIT at the Atlanta Marriott Marquis.

Kibel discussed the benefit some REITs are seeing by obtaining investment-grade credit ratings.

Since the end of the financial crisis, “companies are realizing that an investment-grade credit profile is providing them with the opportunity to tap an unsecured debt market and to continue to unencumber their portfolios and make a commitment to earnings growth long term,” he said.

Asked which economic indicators he will follow most closely in 2015, Kibel highlighted job growth and the macro-economic environment. Job growth in the U.S. remains frail, according to Kibel. Meanwhile, economic instability in Europe, China and the Middle East has the potential to impact equity and debt markets in the United States.

Kibel also discussed whether REITs are at a point where they need to be more judicious in their use of leverage.

“We haven’t seen it yet,” he noted. Leverage still appears to be stable, while some companies continue to de-lever because capitalization rates are attractive, according to Kibel.

“The market is very good for them to cull their portfolio, so to some extent, some are still net sellers. They are using some of that cash flow to de-lever and pay off debts,” he said.

Kibel noted that an increase in leverage could occur in the outlet center sector, where development pipelines are starting to grow. Yet, for the most part, companies are committed to a capital structure of 60 percent equity and 40 percent debt.