Safety-oriented investors can get have an entire host of concerns according to the above title regardless of direct real estate investments. As a result, we’re going to start with a very vital assurance. The instability of the market is rising once again.
So, it’s essential to know about the essential metrics before you invest in REIT (Real Estate Investment Trusts). Indeed, we should know which one among the metrics matter much to decide the right REITs.
As we already know ‘what is a real estate investment trust’, now let’s remember the most useful metrics of this investment category. These metrics will help you to make better decisions that have aligned with the financial goals.
Funds from Operations (FFO)
The FFO is an identical industry term that has comes from NAREIT. It has described as GAAP that has made of income and depreciation. That’s possible from sales of property.
Because GAAP reduction and paying off have deducted from net income, the FFO is very vital than earnings. But, if you maintain your wealth, it usually realizes at a price over time.
Also, the said fees become lower earnings for every share that can make your REIT’s payment ratio show high. FFO is a better way of deciding operating cash flow a REIT that gives better clues about how secure its dividend is.
Distribution Per Unit (DPU)
Investors should wait for REITs with average growth in their DPU instead of looking for higher distribution yield. As it indicates this REIT’s assets as stable as able to attract tenants, growing DPU is a good indication.
CapitaLand Mall Trust or C38U is an excellent example of it that has time to time growth for the last five years. Likewise, there are lots of positive DPU in the previous four years that are higher up to +6.03 per cent.
Gearing Ratio
It’s the total borrowings (both short and long term) divided by the total assets. Also, this is a ratio of less than 50 per cent represents a low ratio of equity debt.
Indeed, it’s a higher watched number for REITs investors like you as most of them roll on the mortgage. They have a limit to the highest gearing ratio of 45 per cent as the unique landscape of the US REITs.
Generally, we’re still viewing a healthy landscape in the REIT sector. It’s because more than 80% of the REIT has a gearing ratio that’s less than 40 per cent.
Distribution Yield
This is another vital metric to measure the income you receive. It has relation to the range of your asset. Usually, REITs offer it that is higher than the average of the stock market. In the last few years, REITs have an average yield that’s ranging from 6 per cent to 8 per cent.
It’s almost certainly one of the critical causes that investors love the asset class. There are also some other useful metrics to keep an eye on. These include Cost of Capital, AFFO, AFFO Payout Ratio, Debt/EBITDA, and Credit Rating.
