Moody's said the 2019 outlook for U.S. real estate investment trusts and real estate operating companies is stable, with commercial real estate fundamentals expected to remain robust, though several property types will experience a slowdown in growth.
The rating agency expects net operating income for REITs to grow by 1% to 3%, with liquidity supported by multiple sources of capital, and continued modest leverage levels. Moody's expect industrial and wireless tower REITs to see exceptionally strong growth, while regional mall REITs will continue to face challenges.
According to the report, REITs are entering into a slow-growth phase with strong balance sheets and access to private capital, allowing them to issue unsecured debt at attractive rates, with healthy institutional demand and prices near cyclical highs.
Fixed-charge coverage ratios for REITs remain at historically high levels, making them well-placed for rising interest rates. The companies' debt maturities have lengthened over the past few years due to solid debt issuance and are well-laddered, with healthy cash flows expected to ward off pressure from higher interest costs, the rating agency noted.
Moody's said that REITs of all types are expected to adapt to changing consumer tastes and demographics in the coming year. Mall operators are actively leasing more space for dining, entertainment, health and wellness purposes, while tech and media companies are asking landlords to provide flexible, amenity-rich working environments.