Moody's: REIT Outlook Stable

The rating outlook for U.S. real estate investment trusts and real estate operating companies is stable, according to Moody's Investors Service, despite "continued negative trends" in, most notably, the multifamily and office sectors.Moody's expressed concern about whether REIT managements will continue to exercise financial discipline as REITs are faced with more pressure to return to a "growth mode" in 2004. Weakened real estate fundamentals have already taken a toll on REITs, and they are left with little cushion at current rating levels to "absorb the effects of further revenue declines on their franchises, risk profiles, or balance sheet fundamentals," Moody's said. The rating agency also cited a concern that an interest rate shift could cause property values to drop, which would negatively affect REIT financing. Moody's said it expects mergers and acquisition activity in the REIT sector to resume -- especially in the multifamily, office, and community retail sectors -- but that deals will "probably be smaller" in the near term. "We do not expect significant improvement in REITs' credit profiles until there is sustainable recovery in the economy and employment levels," said John J. Kriz, a managing director in the Moody's real estate finance group. Moody's can be found online at http://www.moodys.com.