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Announcement:

Moody's: US REITs and REOCs in period of recovery

03 Jun 2010

New York, June 03, 2010 -- As finance and credit markets stabilize, rated U.S. real estate investment trusts (REITs) and operating companies (REOCs) are starting to move into a period of recovery, with few rating downgrades expected in the next 12 months, says Moody's Investors Service in its 2010 review and outlook.

"For many REITs, recovery has involved a move 'back to basics' in terms of management focus on liquidity, conservative capital structures, maintaining high quality unencumbered portfolios, efficient operations, and cost saving initiatives," says Moody's Senior Vice President Philip Kibel, who contributed to the report. "Gone are the days of large, on-balance sheet, speculative development pipelines, merchant building and fund businesses."

Moody's expects any rating actions to relate to circumstances unique to a particular REIT and not to any industry-wide developments. The negative rating actions will be attributed more to operational challenges and larger than expected declines in cash flows and less to balance sheet or liquidity constraints. Any changes in ratings will, most likely, be limited to a one-notch movements or a change in rating outlook.

The REITs will continue to face operating challenges as conditions pressure occupancy levels and rental income, and rising cap rates accentuate leverage levels, says Moody's. Despite the progress in lowering book leverage to date, Moody's expects US REITs will need to delever further in order to align their balance sheets with reduced property values and expected declines in cash flows.

The quality of a REIT's operations and how effectively they continue to manage liquidity, portfolios and cost savings will be increasingly important to their ratings, says Moody's.

By sector, Moody's has a stable outlook on the majority of its rated retail REITs but maintains a negative outlook on retail real estate fundamentals as high unemployment, low disposable income and persistent economic weakness continue to challenge credit conditions.

The outlook for the real estate fundamentals in the office sector is also negative. The outlook for office REIT ratings, however, is stable as rated office REITs made substantial progress in de-leveraging balance sheets in 2009 and have some cushion for the challenging conditions ahead.

The rating outlook for industrial REITs is negative as is the outlook for the sector's real estate fundamentals, although liquidity pressures have abated somewhat.

The short-term trend for multifamily real estate fundamentals is negative in Moody's view. However, Moody's has an overall stable rating outlook for the REITs in the sector due to some positive indications in market rents and vacancy rates and consistently strong management of company balance sheets.

Moody's has a stable rating outlook for healthcare REITs, reflecting sound balance sheets and a generally stable operating environment in the sector.

Moody's rating outlook for the lodging REITs remains negative since credit metrics for most firms are still weak; however, Moody's believes that the trends in the lodging real estate fundamentals are positive and would expect the companies to translate strengthening performance into higher earnings and better debt protection measures over time.

The report "US REIT and REOC Review & Outlook" is available on moodys.com.

In addition, Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com/SFQuickCheck.

* * *

NOTE TO JOURNALISTS ONLY: For more information please contact New York Press Information +1-212-553-0376; EMEA Press Information in London +44-20-7772-5456; Juan Pablo Soriano in Madrid +34-91-310-1454; Alex Cataldo in Milan +39-02-914-81-100; Eric de Bodard in Paris +331-5330-1076; Detlef Scholz in Frankfurt +49-69-707-30-700; Mardig Haladjian in Limassol +357-25-586-586; Alex Sazhin in Moscow +7-495-228-60-60; Petr Vins in Prague +4202 2422 2929; Tokyo Press Information +813-5408-4110; Hilary Parkes in Toronto +1-416-214-1635; Hong Kong Press Information +852-2916-1150; Hector Lim in Sydney +612 9270 8102; Luiz Tess in São Paulo +5511-3043-7300; Alberto Jones Tamayo in Mexico City +5255-1253-5700; Daniel Rúas in Buenos Aires +54 11-4816-2332 ext. 105; Craig Jamieson in Johannesburg +27-11-217-5470; Jehad el-Nakla in Dubai +971 4 401 9536; or visit our web site at www.moodys.com

New York
Philip Kibel
Senior Vice President
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Nick Levidy
Managing Director
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's: US REITs and REOCs in period of recovery
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