Mark Streeter, managing director at JP Morgan Chase, joined REIT.com for a video interview during REITWise 2014: NAREIT’s Law, Accounting and Finance Conference held in Boca Raton, Fla.
Streeter was asked about appropriate debt levels for REITs and how the industry as a whole performs in this area. He noted that since the financial crisis, the REIT industry has been more focused on the metric of debt to earnings before interest, taxes, depreciation and amortization (EBITDA).
“The debt-to-EBITDA metric is more comparable across sectors, and that’s been driven in part by the desire by investors and the ratings agencies to really compare REITs to the broader market,” Streeter said.
He added that the right level of leverage is dependent on the asset class. “You really need to drill down to where the asset’s valued on an equity basis” to determine the appropriate amount of leverage that the market valuation can support, Streeter said.
Streeter also commented on the merits of obtaining an investment grade rating.
“I think most of these REITs are focused on running now with investment grade credit ratings. We’re up to 60 names that are actively issuing in the bond market right now and have pursued investment grade credit ratings, and there’s still a pipeline of many more names that are looking to tap the market,” Streeter observed. “Most REIT CFOs are very focused on having access to public and private capital, secured and unsecured, just like they’re focused on having access to public and private equity… I think it’s the most prudent strategy to have a rating,” Streeter said.
“We’ve seen many, many new names come to the market recently. There’s been a whole host of new REITs to the market that have really benefitted from having that access and having that credit,” he added.
Streeter also said he is trying to keep investors focused on the fact that from a credit perspective, the REIT industry continues to perform well.
“The bonds don’t default. They’re basically worth par. You have very protective covenants. It’s a very unique asset class in the investment grade credit market,” he pointed out.