11/15/2013 | by
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REIT Metrics Stronger Than Before the Recession, According to Analyst

Merrie Frankel, vice president and senior credit officer with Moody's Investors Service, joined REIT.com for a video interview at REITWorld 2013: NAREIT's Annual Convention for All Things REIT at the San Francisco Marriott Marquis. 

Frankel was asked if REITs had stabilized their balance sheets to her satisfaction. 

"Yes, to a great extent REITs have stabilized their balance sheets," she said. "REIT metrics have gotten a lot stronger, even stronger than they were before the recession. Number one, REITs have reduced their overall leverage, and even those who have grown significantly have financed this growth through a nicely prudent mix of debt, equity and asset sales. Number two, fixed charge coverage is at all-time highs, and the REITs also have quite laddered debt maturity schedules."

Frankel also discussed the challenges of determining a REIT's creditworthiness in the current environment.

"There are a few key risks we're thinking about," she said. "One risk is excess new supply and macro-economic risk, because that could feasibly weaken the real estate demand - because, basically, a lot of the new supply, a lot of the building, is being based on projections and forecasts. If the somewhat tepid economic recovery that we're having continues, or if it falters, then there could be an issue with that. But, typically, REITs do have the better properties than their competitors, so we think this should be okay. Number two, we all know there is going to be higher interest rates. REITs like everyone else will have to contend with this in the future. But we believe this can be quite manageable if the interest rates rise in a steady fashion."

Frankel also talked about other trends she is expecting to see in 2014.

"I think a few of the trends are IPOs and also development and re-development," she said."I think we've all seen a number of IPOs. We've had a lot of new rating this year, which is great. I think that you're seeing a lot in the redevelopment and development pipelines. The REITs have been expanding these pipelines as business has been getting better. The preponderance has been redevelopment, which is good because they are improving their current stock of properties. I would say any rating actions we're going to take are likely to be very company specific over the next year or two. Basically, we're going to continue to monitor how they are able to make these improvements and acquire new properties and access the public market."