NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) issues a new report, “REIT Q1’18 Credit Update: Term Loans Increase Market Share” The report makes the following key points:
- Leverage for REIT unsecured note issuers increased slightly during Q1’18 from 38.7% to 39.0% based on gross book value, and slightly more from 31.1% to 33.8% based on market value, reflecting a 9.2% quarterly decline in the FTSE NAREIT Equity REITs Index.
- As noted in KBRA report, REIT Q4’17 Credit Update - Calm Before the Storm, REIT leverage and credit metrics marked decade and historic lows during 2H’17. Currently prevailing REIT discounts to net asset value (NAV) have negative implications for REIT continued equity issuance and reduction in leverage.
- REIT bond spreads, while slightly wider year-to-date (YTD), have outperformed the broader corporate sector, suggesting investors have placed greater emphasis on REITs’ low leverage than sector equity underperformance.
- In what may come as a surprise, median leverage (net debt / total market cap) is only slightly higher for term-loan-only issuers (36.2%) than public issuers (35.0%), and lowest (30.5%) for REITs that have issued unsecured notes but only via private placements.
- In contrast to slower REIT YTD public and private issuance of unsecured notes, bank unsecured term loan originations are relatively unchanged, in part driven by a reduction in borrowing spreads to levels that often compare favorably to unsecured notes, particularly for smaller and unrated REITs.
- While KBRA views the increased availability and more favorable pricing of unsecured bank term loans as positives for the REIT sector, reliance on bank financing is viewed negatively both for more highly-levered REITs and for lower-levered companies that forego the opportunity to place longer-term debt with a more diverse base of unsecured lenders.
To read the full report, please click here.
Related Publications: (available at www.kbra.com)
- REIT Q4’17 Credit Update – Calm Before the Storm
- REIT Private Placements – Lower Leverage, Better Execution?
- REITs: A Deeper Dive on REIT Bond Leverage – AAA in Disguise?
- Global Equity REIT & REOC Rating Methodology
About KBRA and KBRA Europe
KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.