[January 18, 2019] |
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KBRA Publishes Research: REIT Credit Update: a Deeper Dive on REIT Private Placements
Kroll Bond Rating Agency (KBRA) has issued a new report, "REIT Credit
Update: A Deeper Dive on REIT Private Placements."
The report makes the following key points:
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Leverage for REIT unsecured borrowers remained near record lows as of
September 30, 2018, with a median 32.6% debt-to-total market cap.
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Median net debt-to-market leverage is considerably lower for REIT
private placements (27.1%) than for public issuers (33.5%).
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The minimum $300 million offering size required for eligibility within
the Bloomberg (News - Alert) Barclays U.S. Bond Aggregate Index-representing 28% of
private placement issuers' median total debt, a level of maturity
concentration typically avoided by REITs-has deterred many companies
from tapping the public market.
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Private placements likely represent a more advantageous execution for
mid-size REITs seeking right-sized offerings that match more granular
funding needs, with the additional advantages of forward interest rate
locks and delayed funding.
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KBRA questions whether private placement yield premiums relative to
public offerings reflect liquidity or credit risk. The smaller $4.0
billion median market cap and lesser portfolio diversification of
private issuers does not otherwise detract from private issuers' lower
leverage, higher percentage of unencumbered properties, more frequent
equity offerings, and superior covenant protection.
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REIT unsecured debt LTVs are but a fraction of median "look-through"
LTVs for the most subordinate AAA classes of 2018 Conduit and Freddie
Mac CMBS (46% and 55%, respectively). REITs could sustain a nearly 30%
decline in total market cap and unsecured LTVs would still be lower
than at-issuance levels for AAA Conduit.
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REIT unsecured debt ratings appear too low relative to CMBS, a view
corroborated by the growing number of REIT bonds that price tighter
than AAA CMBS Conduit, and potentially relative to corporates with
substantially weaker covenant protection.
To read the full report, please click here.
Related Publications: (available at www.kbra.com)
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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
designated as a designated rating organization by the Ontario Securities
Commission for issuers of asset-backed securities to file a short form
prospectus or shelf prospectus, is recognized by the National
Association of Insurance Commissioners as a Credit Rating Provider, and
is 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.
View source version on businesswire.com: https://www.businesswire.com/news/home/20190118005493/en/
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