Moody's: REITs unchanged by new convertible accounting rule

Moody's Investors Service said new accounting guidance for the treatment of convertible debt instruments with cash settlement features will not lead to any rating changes among the U.S. real estate investment trusts at this time.

With the new accounting rule, FSP APB 14-1, REITs with these instruments will initially report lower debt but higher interest expenses. The agency said it will calculate and evaluate fixed charge coverage using both the previous accounting method based on cash interest paid and also the new accounting rule based on the non-convertible debt borrowing rate.

Both ratios will now be considered in Moody's analysis. However, the agency said the ratings will not be impacted because prior to the new accounting rule, its ratings of issuers with convertible debt reflected a qualitative consideration of the impact of the imbedded option on fixed charge coverage.

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