A credit rating, in the context of the Delaware Statutory Trust (DST) industry, refers to an evaluation or assessment of the creditworthiness of the DST, similar to how it would apply to any business entity or financial instrument.
Delaware Statutory Trusts are entities established for business purposes, particularly in real estate investment. These trusts often acquire debt to purchase properties. The credit rating is used to measure the trust’s ability to repay this debt.
Credit rating agencies typically perform these evaluations. The higher the credit rating, the lower the perceived risk of the DST defaulting on its obligations. Conversely, a lower rating means the DST is perceived to have a higher risk of default.
The rating can directly influence the cost of borrowing for the trust. Higher-rated trusts often get lower interest rates because their risk of default is considered lower. Credit ratings can also influence the trust’s reputation and its ability to attract investments.
It’s also worth mentioning that the credit rating of a DST can sometimes be tied to the rating of the underlying real estate assets held by the trust. That means the creditworthiness of a DST could depend on factors such as the quality of the properties, their occupancy rates, their location, the reliability of rental income, the terms of any lease agreements, etc.
Remember, credit ratings are just one of many factors investors should consider when evaluating a DST. They should also understand the specifics of the trust’s structure, the nature of its real estate holdings, its management team, and other relevant factors.