Understanding the Quality score

Quality for property companies

What makes a strong business?

A good business needs more than a good year. The Quality score looks at how well the company uses its money, earns profit and supports its finances.

This guide uses adjusted property earnings, called FFO. The calculation adds back the gradual reduction in properties’ recorded value and adjusts certain other items. These earnings do not deduct all spending on buildings, such as replacing roofs. Less cash may therefore be available to pay owners. If these figures are unavailable, Findx uses the guide for most companies.

5 parts. One score from 0 to 100.
The score describes the business. It does not tell you whether the shares are cheap.

Using property capital well 20%Supporting owner payments 25%Growing property earnings 20%Steady property earnings 10%Supporting debt 25%

Quality for property companies: illustrated explanation; the same checks are explained below. — Open the full-size image in a new tab.

01 / Read the result

What does the number tell you?

0Lower score

A higher score means stronger results on these checks.

100Higher score

Each part receives points from 0 to 100. The percentages above show how much each part counts. A higher total means stronger results on these checks.

02 / Explore the business

Questions behind the score

The percentages show how much each part counts.

Using property capital well

How much does the property business earn from the money invested in it?

20%of the score

A simple example

A 10% annual return means$10 earned for every $100 used

This describes a return in the business, not the return you receive on your shares.

See how the points are calculated

▸Return on capital – 20%: We use the property company's return on capital, ROC. Its scale runs from 2% at 0 points to 10% at 100 points.

Supporting owner payments

Do adjusted property earnings cover dividends, the payments to owners?

25%of the score

A simple example

$3 paid to owners÷$4 adjusted property earnings=75% paid out

These earnings do not deduct all spending needed on the properties.

See how the points are calculated

▸Earnings relative to dividends – 25%: We compare FFO per share with dividends per share. This shows how well this earnings measure covers the dividend. It receives substantial weight because distributions to owners are an important part of the REIT business model.

Growing property earnings

Are adjusted property earnings growing per share?

20%of the score

A simple example

Adjusted property earnings per share$2 → $2.20=10% growth

The comparison uses property earnings adjusted for accounting items, rather than ordinary profit.

See how the points are calculated

▸Business trend – 20%: We examine growth in FFO per share.

Steady property earnings

How stable are adjusted property earnings compared with income?

10%of the score

A simple example

Adjusted property earnings from each $100 of income$40 · $40 · $40

This shows a steady share across three years.

See how the points are calculated

▸Profitability stability – 10%: We examine the stability of FFO relative to revenue.

Supporting debt

How well do adjusted earnings support interest and debt? How much of the funding is borrowed?

25%of the score

A simple example

$40 borrowed÷$100 total funding=40% debt

A smaller debt share leaves more room when results weaken.

See how the points are calculated

▸Financial strength – 25%: We compare FFO with interest costs (40% of this part) and debt (30% of this part). Debt relative to total capital counts for 30% of this part. This helps assess the debt burden relative to earnings and funding.

Missing figures reduce the information supporting the score and may change how much each remaining check counts. With too little usable information, no score is shown. Read the notes beside the company’s score. A usable return measure is required.

03 / Look a little closer

How we calculate the points

Explore the calculation, the periods used and the information behind the result.

How the checks add up

Real estate (REITs)

For property companies organised as REITs, we use an adjusted earnings measure called FFO. Among its adjustments, it adds back accounting depreciation on properties to profit. FFO helps assess property earnings, but it is not the same as cash available after all spending.

The finer details

If usable FFO figures are unavailable for a property company, we use the standard-company calculation.

What happens when figures are missing?

A poor result and a missing figure are different things. A poor result lowers its part of the score. When a figure is missing, the other parts may receive more weight. We also show that the assessment is based on less information.

We measure how much of the calculation has usable information. We use the component weights, so a missing measure with a large share matters more. At least 90% normally gives High confidence, 70% to below 90% gives Medium, and 60% to below 70% gives Limited. Confidence can be lower when some figures rely on an alternative calculation.

We do not show an overall Quality score if usable information covers less than 60% of the calculation. We also need a usable return-on-capital measure. Without it, we do not show the score. For a bank, we use the corresponding bank return measure.

A measure that is not used for that business type does not count as missing. For example, we do not assess a bank using the standard free cash flow calculation.