Most Major REITs Should Maintain Investment Grade Status
CreditSights believes that most industry-leading Real Estate Investment Trusts “will maintain their investment grade ratings through this upcoming cycle, assuming that the economy does not weaken materially from its current state.”
The comments accompanies the latest ratings from BondScore, CreditSights’ proprietary quantitative framework for estimating the default probabilities of corporate and financial issuers. A key output of BondScore is an estimate of an issuer’s one-year forward default probability, known as the Credit Risk Estimate (CRE).
Avalon Bay Communities has the best CRE at 0.10257 %, while First Industrial Realty has the worst, at 37.3%, followed by ProLogis at 10.18%. The latter two are the only REITs in double figures. On April 3 Standard & Poor’s removed ProLogis from RatingsWatch Negative. First Industrial remains on RatingsWatch Negative.
“While limited in their cash preservation capability due to dividend requirements, REITs tend to maintain their investment grade status as a result of their tangible and relatively liquid assets, comparatively predictable cash flows, and standard financial covenants.”
Absent these financial covenants, we fear that many REITs would have been too highly leveraged going into the downturn and would not be able to survive the next few years let alone maintain investment grade ratings.
For details see: REIT Ratings: BondScore Ahead of the Curve?
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April 13th, 2009 at 4:48 pm
[...] a similar vein, CreditSights believes that most industry-leading REITs “will maintain their investment grade ratings through this [...]