Certain industries by virtue of their unique characteristics have proven to be stumbling blocks for investors, who are used to reading the financial statements of a typical goods and/or service business.
This is one of many in a series of articles where I reveal the nuts and bolts of investing in unique industries like REITs etc.
How to Assess the Financial Strength of REITs:
Debt/Asset Ratio
- The lower the better.
Proportion of Variable Rate Debt
- The higher the proportion of floating rate debt, the higher the volatility in interest rate expense.
Debt Maturity
- A longer debt maturity reduces refinancing risks and allows REIT managers to focus on operating decisions instead of financing issues.
Complexity of Debt Structure
- Prefer simple loans and bonds to convertible bonds and CMBS (commercial mortgage backed securities).
Credit Rating by Rating Agencies
- A second opinion won't hurt after you have done your own analysis. Go for investment-grade REITs.
This is one of many in a series of articles where I reveal the nuts and bolts of investing in unique industries like REITs etc.
How to Assess the Financial Strength of REITs:
Debt/Asset Ratio
- The lower the better.
Proportion of Variable Rate Debt
- The higher the proportion of floating rate debt, the higher the volatility in interest rate expense.
Debt Maturity
- A longer debt maturity reduces refinancing risks and allows REIT managers to focus on operating decisions instead of financing issues.
Complexity of Debt Structure
- Prefer simple loans and bonds to convertible bonds and CMBS (commercial mortgage backed securities).
Credit Rating by Rating Agencies
- A second opinion won't hurt after you have done your own analysis. Go for investment-grade REITs.
