How to evaluate Real Estate Investment Trusts (REITs)
I look for several items, when evaluating REITs
I look for several items, when evaluating REITs
1. Funds from Operations (FFO)
We use FFO, as opposed to Earnings Per Share with REITs. FFO adds net income plus depreciation and amortization of real estate assets, reduced by gains on sales of investment properties
I like to see FFO/share growth over past 5 - 10 years
We use FFO, as opposed to Earnings Per Share with REITs. FFO adds net income plus depreciation and amortization of real estate assets, reduced by gains on sales of investment properties
I like to see FFO/share growth over past 5 - 10 years
2. FFO Payout
FFO Payout Ratio is calculated by dividing the dividend payment over the FFO/share.
I want to have some margin of safety in the form of a lower FFO Payout Ratio, in order to reduce risks of dividend cuts
FFO Payout Ratio is calculated by dividing the dividend payment over the FFO/share.
I want to have some margin of safety in the form of a lower FFO Payout Ratio, in order to reduce risks of dividend cuts
3. Occupancy and Tenant Diversification
Diversification is an important thing to have as it offers some level of protection to the company when something unexpected happens.
I check to see if top ten tenants account for too large of a percentage of revenues
Diversification is an important thing to have as it offers some level of protection to the company when something unexpected happens.
I check to see if top ten tenants account for too large of a percentage of revenues
4. Plans for growth
The fuel behind future distributions growth is growth in FFO/share. Companies should be able to achieve it by raising rents, cutting costs, buying new properties at attractive entry prices
The fuel behind future distributions growth is growth in FFO/share. Companies should be able to achieve it by raising rents, cutting costs, buying new properties at attractive entry prices
5. Debt, Cost of Capital and Risks
Understanding the leverage, how new projects are financed, debt maturities and whether companies can service debts is important
Understanding the leverage, how new projects are financed, debt maturities and whether companies can service debts is important
6. Dividend Growth
I focus on companies that have raised dividends for at least ten years in a row
I am looking for dividend growth per share that exceeds inflation over time
I focus on companies that have raised dividends for at least ten years in a row
I am looking for dividend growth per share that exceeds inflation over time
Last but not least: Attractive Valuation
This is the part that's more art than science
It's dependent on understanding the business, the Price/FFO, payout ratio, the dividend yield, and the growth prospects of the REIT
Stability and dependability of cashflows matter
This is the part that's more art than science
It's dependent on understanding the business, the Price/FFO, payout ratio, the dividend yield, and the growth prospects of the REIT
Stability and dependability of cashflows matter
Six Things to Look For in a Real Estate Investment Trust (REIT)
dividendgrowthinvestor.com
dividendgrowthinvestor.com
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