REIT Investment-Grade Bonds and Term Loans

Introduction

Most people picture real estate debt as a mortgage on a building, but the largest REITs do not fund themselves that way at all. They borrow the way an investment-grade industrial company does: through unsecured corporate bonds, bank term loans, and revolving credit facilities, with no lien on any specific property. This corporate-level debt sits on the same side of the house as the equity tools, and it is what lets a big REIT operate as a single rated credit rather than a collection of separately mortgaged assets. The model rests on two pillars that distinguish REIT debt from both property-level mortgages and ordinary corporate bonds: a pool of unencumbered assets, and a covenant package most investment-grade issuers never have to give.

A large REIT typically runs three unsecured instruments in parallel. Public bonds provide long-dated term funding across a range of maturities. A revolving credit facility acts as a flexible backstop that the company draws and repays as cash needs ebb and flow. And bank term loans fill the space in between, usually priced off SOFR on a grid that tightens or widens with the REIT's leverage. American Healthcare REIT, for example, recently ran a $1.35 billion facility split into a $550 million term loan maturing in 2027 and an $800 million revolver maturing in 2030 (extendable to 2031), with pricing linked to its leverage. The heaviest users of this playbook are large, highly rated platforms in stable sectors, such as the big net-lease REITs, whose predictable rents and scale earn them the tightest unsecured spreads.

The market is sizable and well-bid. REITs issued roughly $25.2 billion of unsecured debt through the first half of 2025 at an average yield to maturity around 5.8%, and fixed-income investors tend to favor the sector for its disclosure and resilience. The choice between a bond and a bank loan turns on tenor, flexibility, and cost: bonds lock in long maturities at a fixed coupon, typically issued as bullet or make-whole-callable notes, while bank facilities offer prepayment flexibility and revolving capacity but carry tighter, more lender-protective terms.

Unencumbered asset pool

The unencumbered asset pool is the set of a REIT's properties that carry no mortgage or other lien. It is the collateral base, in an economic sense, that supports unsecured borrowing: the larger and higher-quality the unencumbered pool, the more unsecured debt a REIT can raise and the better the rate, because bondholders can look to those free assets if things go wrong.

The unsecured approach is a deliberate departure from how most real estate is financed. A typical building is funded with a mortgage secured by that single asset, but a large REIT pools its higher-quality properties lien-free and borrows against the entity instead. That shift, from asset-by-asset secured debt to entity-level unsecured debt, is the financial hallmark of a REIT crossing into investment-grade scale, and it reshapes how every subsequent financing decision gets made.

Here is where REIT bonds become genuinely distinctive. Most investment-grade corporate bonds carry no financial maintenance covenants at all, but REIT bonds historically include four, and issuers disclose their actual levels against them every quarter. The package dates back to the early days of the unsecured REIT bond market and has become a defining feature of the asset class.

Bank facilities layer on still more protection. A modern REIT credit agreement adds covenants on consolidated leverage, secured leverage, tangible net worth, fixed-charge coverage, and unencumbered leverage, and the standard 60% maximum leverage ratio often flexes up to 65% for a few quarters after a material acquisition. The covenant structure across both bonds and loans interacts with the same property-level debt metrics that govern individual assets, but applied to the entire entity, and it sits in the structure just above the preferred stack and the common equity.

The unsecured model is something a REIT earns. A smaller or unrated REIT generally relies on property-by-property mortgage debt, because lenders want specific collateral. As a REIT grows, builds scale, and secures an investment-grade rating, it migrates toward unsecured borrowing, deliberately keeping a large block of assets unencumbered so it can tap the bond market cheaply and flexibly. The rating agencies sit at the center of this: a REIT's credit rating, driven heavily by its leverage and the size of its unencumbered pool, sets the spread it pays, and a downgrade can raise its cost of capital across every future issue.

When agencies and lenders measure that leverage, they do not run it off raw net income or even standard EBITDA. They use EBITDAre, the Nareit-standardized earnings figure that strips real estate out of the depreciation distortion. It starts from EBITDA, which already removes all depreciation and amortization, then removes gains on property sales, adds back losses on property sales and impairment writedowns, and folds in the REIT's pro-rata share of the same adjustments at its joint ventures, so that two REITs with different transaction histories can be compared on a like-for-like operating basis.

EBITDAre is the shared denominator under almost every entity-level credit ratio that follows, which is why the agencies anchor on it before anything else.

The headline leverage metric built on it is Net Debt to EBITDAre: total debt net of cash, divided by annualized EBITDAre. It expresses how many years of operating earnings the REIT's net borrowings represent, and investment-grade platforms typically run it in the low-to-mid single digits, with the agencies treating a sustained climb as a signal of pressure on the rating.

Agencies pair that earnings-based view with a balance-sheet view, Debt to Gross Asset Value, which measures total debt against the REIT's gross (undepreciated) real estate assets rather than their depreciated book value. Using the gross figure avoids understating the asset base on older portfolios, and it ties directly to the same logic behind the covenant package, where leverage is tested against undepreciated assets rather than book.

Read together, the two ratios bracket the REIT's leverage from the income side and the asset side, and a credit that looks conservative on one but stretched on the other usually rewards a closer look.

The payoff for reaching investment grade is real flexibility. Unsecured debt carries no asset-level liens to negotiate, no individual property appraisals on every refinancing, and no cross-default tangle, so the REIT can buy, sell, and refinance assets freely. It also lets the company act as one credit, the same logic that underpins how the REIT structure is built to operate at scale. The trade-off is the covenant discipline above, which a secured borrower never signs up for, and the standardized tenors of the investment-grade bond market the REIT now issues into.

A meaningful slice of REIT unsecured issuance now carries an environmental label. In a green bond, the issuer commits to spend the proceeds on qualifying projects, energy-efficient buildings, LEED-certified developments, and retrofits, and to report against that framework, in exchange for access to a deeper ESG-mandated investor base that can tighten pricing at the margin. Kilroy Realty, for instance, restricts its green-bond proceeds to LEED Gold and Platinum buildings. The volumes are real but cyclical: five REITs issued roughly $4.25 billion of green bonds in 2024, about 8% of total REIT bond proceeds and more than double the prior year, led by Equinix with around $1.88 billion across three euro-denominated deals, before the market thinned again in 2025. Structurally a green bond is an ordinary unsecured note, same covenants, same ranking, with only a use-of-proceeds commitment and a reporting obligation layered on top, which is why the label can widen the buyer base without changing where the bond sits in the capital structure.

Because a REIT distributes most of its income under the 90% payout rule, it retains little cash to repay debt, so maturing bonds and loans almost always have to be refinanced rather than paid off. That makes the maturity ladder a central risk: a well-run REIT spreads its maturities across many years so that no single year forces it into the market on bad terms, and it uses the revolver as a bridge to term out into bonds when conditions are favorable.

Reading the credit as an analyst

Reading a REIT's corporate debt comes down to four things: the rating, the four covenant ratios, the maturity ladder, and the size of the unencumbered pool. Together they describe both the cost and the durability of the financing, and they sit just above the preferred stack and the common equity to complete the capital structure.

Coverage is the durability half of that picture, and it runs off the same EBITDAre denominator. The simplest measure is interest coverage, EBITDAre divided by interest expense, which tells you how many times current operating earnings clear the interest bill before any principal is even considered.

Interest coverage alone flatters a REIT with a heavy preferred stack or near-term required amortization, because neither shows up in the interest line. The stricter test analysts and credit agreements lean on is fixed-charge coverage, which puts preferred dividends and required amortization in the denominator alongside interest, capturing every contractual claim that sits ahead of the common.

Because it sweeps in the preferred and the amortization, fixed-charge coverage is the number that most often binds in a bank credit agreement, and it is the one to watch when a REIT carries a large preferred layer on top of its bonds. Anyone who can explain why a large REIT borrows unsecured, what the four covenants protect, and why the unencumbered pool is treated as sacred understands REIT credit at the level a debt desk expects.