Basic Financial Metrics of REITs

For this post, I would like to share some basic financial metrics of REITs, there will be some repetitive metrics from debt profile of REITs. All the information below can be extracted from REITs quarter presentation slide and quarter financial report.

1) Distribution per Unit (DPU)  & Dividend Yield
DPU = Distribution / Outstanding Shares

Dividend Yield = DPU / Share Price x 100%

DPU is the dividend (in dollar) that investor will receive for every number of share owned. Dividend yield is the dividend % that investor would receive for every $1 of share price. Dividend yield is generally calculated using trailing twelve months (TTM) dividend. For those counters which are less than 12 months, one could annualized the DPU to have a more accurate dividend yield. Dividend yield can be calculated base on your average share price (a.k.a. cost) or base on market price.

Again, do not buy solely based on dividend yield

2) Net Asset Value (NAV) & Price over NAV (P/NAV)

NAV = Total Assets - Total Liabilities.
NAV per unit = NAV / Outstanding Shares
P/NAV = Share Price / NAV per unit

NAV is the also known as book value or equity portion under balance sheet. Therefore, P/NAV also known as price to book ratio (P/B ratio). In simple term, if this value is less than 1, mean you can buy it by paying less than its net asset and vice versa for more than 1.

For NAV presentation, there are minor inconsistency between each REIT. Some would calculate NAV by using issued unit while some using issued unit + issuable units. There are also some show NAV which exclude dividend in theirs quarter presentation slides. Although the difference is not really big, but I would recommend do maintain data consistency by manually calculate NAV per unit by yourself. Let's see below for different NAV presentation from Frasers family:

Frasers Commercial Trust - NAV exclude dividend 

Frasers Hospitality Trust - NAV based on issued unit

Frasers Centrepoint Trust - NAV based on issued and issuable units

3) Property Yield (Cap Rate)
i) Without Joint Venture or Associate
Property Yield = Net Property Income / Properties Valuation
ii) With Joint Venture or Associate
Property Yield = Net Property Income + Distribution from Joint Venture and Associate / Property Valuation + Interest in Joint Venture and Associate

This value indicate the earning power of REITs portfolio, the higher the value the better. However, since properties valuation is generally high in prime area, therefore property yield would be lower. As per previously mentioned in lease profile of REITs, some hospitality REITs classify some of their properties under property, plant and equipment instead of investment properties. So when calculate property yield, do remember to add those value back.

If a REIT has interests in associate or joint venture, then they would receive distribution from joint venture or associate from time to time, which you could find this information in cash flow statement under investing activities. For this case, you would have to use the 2nd formula.

4) Gearing Ratio & Interest Cover Ratio
Gearing ratio = total debts / total assets. Monetary Authority of Singapore (MAS) impost a 45% gearing limit on REITs.

There are few methods to calculate interest coverage ratio:
i) EBIT / Interest Expense
ii) EBITDA / Interest Expense
iii) NPI / Interest Expense

For more detail explanation of both, you could refer debt profile of REITs.

When assessing above financial metrics for REITs, do check their lease profile, debt profile, diversification profile as well. Especially take note for REITs with income support because of DPU might be affected upon expiry of income support. You could refer How to Create Your Own Basic REITs Screener to customize your own REITs Screener.