Real estate investment trusts and master limited partnerships have more similarities than differences, although there are some notable contrasts, according to Fitch Ratings in a new report.
REITs and MLPs are corporate bond issuers, which are generally rated in the 'BBB' category. They also have similar liquidity needs and tax considerations.
However, one notable difference between the two is leverage.
REITs in the 'BBB' category tend to have leverage in the "5.0x to 6.0x range" while MLPS in the same category tend have leverage in the "3.5x to 4.5x range."
"One reason why REITs can operate with higher leverage than MLPs at a given rating level is because there are no alternative secured financing markets for MLPs as there are for most equity REITs," analysts for Fitch said.
They added, "If the unsecured bond market is not an economical alternative, REITs may elect to access the CMBS market, insurance company or bank principal mortgage markets as sources of contingent liquidity."