Moody's Investors Service has updated its global methodology on REITs as well as other commercial real estate firms.
The new methodology includes an explanation of changes to the ratings scorecard, which is a grid of factors and sub-factors suggesting a rating. Moody's analysts also complete the scorecard as part of the rating committee process.
The methodology changes include different weightings for the sub-factors used in the scorecard. The new differences in weightings better reflect the degree of influence each sub-factor has on the overall rating. Prior to this, all of the scorecard sub-factors were weighted equally.
Additionally, the possible implied rating outcomes reflected in the scorecard have been widened. The outcomes now range from 'Aa' down to 'Ca'. In the previous methodology the lowest implied rating category of the range was 'B'.
The rating agency's credit opinions explaining the ratings of all REITs and other commercial property firm will incorporate the updated ratings scorecard.
"Moody's methodologies enable market participants to better understand how key qualitative and quantitative risk characteristics are likely to affect rating outcomes," says Moody's Managing Director Nick Levidy. "While reflecting similar core principles as the methodology it is replacing, the updated framework enhances and refines our methodology for rating REITs and other firms in the sector."
The rating agency is not expecting any changes to public ratings as a result of the changes to this methodology.
Moody's rates the securities of 123 commercial real estate firms globally. It published its first global methodology for REITs in 2006.
