Morningstar now is providing credit ratings for real estate investment trusts (REITs).
Brian Nelson, director of training and credit methodology for Morningstar's securities research staff, says in an article posted on the company's Web site that four separate scores are looked at to arrive at a REIT's final credit rating.
The ratings are based on a Business Risk Score, which evaluates a REIT's competitive advantages and ability to earn excess returns on capital, as well as other core business characteristics; an Asset-adjusted Cash Flow Cushion Score, which evaluates a REIT's ability to cover debt; a REIT Solvency Score, a predictor of default based on a REIT's liquidity profile, leverage, coverage and profitability; and a Distance to Default Score, which evaluates the risk that the value of a REIT's assets will turn out to be less than the sum of its liabilities.
For more information on the new rating system, click here.