REIT Leverage Perspectives

Moody's out with a piece, in which it joins the S&P chorus (well, not technically a chorus if just one is singing) Zero Hedge wrote about earlier, in which it seems the two major rating agencies are now taking both REITs and associated securitization conduits to the woodshed, and making it inevitable that Geithner adjusts the requirements for CMBS TALF participation. For once being a 1-10 year lagging indicator may actually be a market normalizing influence.

In the meantime, I present some of the relevant leverage charts from Moody's piece titled "US REIT and REOC Review & Outlook: Declining Fundamentals Cloud Outlook for Ratings." These should probably be kept in mind as one considers Bill Ackman's "bull" case in GGP. The debt/EBITDA trends should soothe all those who keep buying follow on after follow on offering. Come refi time, those 10% cap rates will also make sure their lives are a walk in the park.

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Macy's, Meet Junk

Moody's is back to its wicked stop-the-stupid-rally ways by junking Macy's. Moody's cut the retailer's unsecured debt rating from Baa3 to Ba2.

"The downgrade reflects the sharp deterioration in Macy's credit metrics to levels that are more appropriate for a mid Ba rating" stated Maggie Taylor, Vice President & Senior Credit Officer. "The downgrade also reflects Moody's expectation that Macy's operating performance will continue to be pressured given the current challenging consumer spending environment." Given this, Moody's expects Macy's credit metrics will deteriorate further over the next twelve months to levels that will be weak even for the new Ba2 rating."

Brave investors everywhere disagree with Moody's assessment, and are lapping up every share of M stock they can get their greedy little hands on. Credit deterioration, pension underfunding, declining cash, dividend cuts, dropping earnings: those are for pussies - bring on the paaaaain. It is amazing what a 0.5% beat on otherwise record low ISM readings, together with a few extra cars sold by a soon to be bankrupt company can do to investor sentiment. Sphere: Related Content

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