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Moody's downgrades Select Income REIT ratings, changes outlook

Moody's downgraded Select Income REIT's ratings, including its issuer and senior unsecured ratings to Baa3 from Baa2, and modified the ratings outlook to stable from negative.

The downgrade follows the real estate investment trust's plans to spin off and then IPO its industrial asset portfolio into a stand-alone real estate investment trust called Industrial Logistics Properties Trust.

The rating agency also downgraded the ratings on the REIT's senior unsecured shelf to (P)Baa3 from (P)Baa2, senior subordinated shelf to (P)Ba1 from (P)Baa3, junior subordinated shelf to (P)Ba1 from (P)Baa3 and preferred shelf to (P)Ba1 from (P)Baa3.

Moody's also attributed the downgrade to its view that Select Income's proposed spinoff will likely result in a smaller and less diversified company by property type, with a more complex structure and a weaker credit profile than the existing combined business.

The stable outlook mirrors the rating agency's assumptions that Select Income will successfully execute the spinoff of its industrial portfolio and use the proceeds to repay debt. Moody's also expects Select Income to preserve stable earnings growth and robust occupancy levels in its office portfolio following the spinoff.