articles Corporate /en/research-insights/articles/when-the-credit-cycle-turns-u-s-reits-look-ready-to-handle-rising-rates content
BY CONTINUING TO USE THIS SITE, YOU ARE AGREEING TO OUR USE OF COOKIES. REVIEW OUR
PRIVACY & COOKIE NOTICE
Log in to other products

Login to Market Intelligence Platform

 /


Looking for more?

Request a Demo

You're one step closer to unlocking our suite of comprehensive and robust tools.

Fill out the form so we can connect you to the right person.

  • First Name*
  • Last Name*
  • Business Email *
  • Phone *
  • Company Name *
  • City *

* Required

In This List
S&P Global Ratings

U.S. REITs Look Ready To Handle Rising Rates

S&P Global Ratings

Fintech's Prospects in the Middle East and Africa

S&P Global Ratings

ESG Industry Report Card: Real Estate and Homebuilders-Developers

S&P Global Ratings

The 'BBB' U.S. Bond Market Exceeds $3 Trillion

S&P Global Ratings

U.S. Corporate Debt Market: The State Of Play In 2019


U.S. REITs Look Ready To Handle Rising Rates

Sep. 24 2018 — As the Federal Reserve continues to normalize monetary policy, and yields on benchmark Treasuries look set to rise accordingly, S&P Global Ratings believes that the healthy balance sheets enjoyed by most U.S. REITs we rate will allow these borrowers to withstand a gradual pace of rate increases with little effect on their credit quality.

S&P Global Ratings economists forecast two more quarter-point Fed rate hikes this year (for a total of four) and three in 2019, which would bring the benchmark federal funds rate to 3%-3.125%, up from effectively zero in the aftermath of the Great Recession. We expect the 10-year yield to reach 3.2% by year-end, 3.4% at the end of next year, and 3.5% in 2020.

We believe most U.S. REITs we rate can absorb this gradual increase in rates, given that their balance sheets hold a limited amount of floating-rate debt and have limited near-term refinancing needs.

While rising interest rates have the potential to weaken credit protection measures, particularly EBITDA interest coverage and fixed-charge coverage ratios, this risk is mitigated because our rated REIT universe consists largely of fixed-rate debt. Less than 20% of REITs we rate have debt structures with more than 25% exposure to variable-rate debt.

Meanwhile, aggregate debt maturities are manageable, in our view. Just 3% of outstanding debt comes due during the remainder of this year, followed by 7% and 11% in 2019 and 2020, respectively (see chart 1).

Read The Full Report
Download