Understanding the Strength score

Strength for property companies

Can the business weather difficult times?

When sales slow down, the bills still arrive. The Strength score looks at debt, cash and profit to help you see how well a business is equipped to cope.

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.

Supporting property debt 35%Steady property earnings 20%Handling income setbacks 15%Lasting profitability 15%Supporting owner payments 15%

Strength 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?

0–29Very weak

30–49Weak

50–69Moderate

70–100Strong

70–100 means strong, 50–69 moderate, 30–49 weak, and 0–29 very weak. A good total can still come with a warning about a specific weakness.

02 / Explore the business

Questions behind the score

The percentages show how much each part counts.

Supporting property debt

Do adjusted property earnings support interest and debt? How large is long-term borrowing?

35%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

In the calculation: Debt and ability to pay

▸Earnings to support property interest costsWe use the property company's FFO interest-coverage measure to assess how comfortably earnings support interest costs. A larger ratio leaves more room if property earnings fall. FFO is adjusted property earnings, not cash left after maintaining and improving the properties.Counts for 40% of this part of the score. Points: 1.5× gives 0 points; 5× gives 100.
▸Property earnings compared with debtWe compare annual FFO with total debt. At 20%, FFO equals one fifth of the debt. A higher percentage means there are more adjusted property earnings relative to borrowing. This helps assess the debt burden alongside interest coverage.Counts for 30% of this part of the score. Points: 5% gives 0 points; 20% gives 100.
▸Long-term borrowingWe compare long-term debt with the capital financing the business. If $40 of every $100 comes from long-term borrowing, the ratio is 40%. A smaller debt share gives the company more room when results weaken.Counts for 30% of this part of the score. Points: 20% gives 100 points; 80% gives 0.

Steady property earnings

How often were adjusted property earnings positive? How deep were their falls?

20%of the score

A simple example

Positive earnings in6 of 8 years=75%

More years with positive earnings show a more consistent record.

See how the points are calculated

In the calculation: Profit and cash through difficult years

▸Years with positive property earningsWe count the years when FFO per share was positive. FFO adjusts accounting earnings for property depreciation and certain other items. More positive years show that the properties have provided positive adjusted earnings more consistently.Counts for 60% of this part of the score.
▸Largest fall in property earningsWe find the largest decline from an earlier high to a later low in FFO per share. A fall from $8 to $4 per share is 50%. Smaller falls show that adjusted property earnings have held up better during weaker periods.Counts for 40% of this part of the score.

Handling income setbacks

How deep was the largest fall in income per share?

15%of the score

A simple example

Income per share$100 → $70=30% fall

Smaller falls mean income per share has held up better.

See how the points are calculated

In the calculation: Sensitivity to downturns

▸Largest fall in sales per shareWe measure the largest fall from an earlier high to a later low in sales per share. A fall from $100 to $70 per share is 30%. Smaller falls show that income per share has held up better. Property sales, changes in activity and changes in share count can all affect this figure.Counts for 100% of this part of the score. Points: 10% gives 100 points; 80% gives 0.

Lasting profitability

Do returns exceed borrowing costs? Are adjusted property earnings keeping up with income?

15%of the score

A simple example

Adjusted property earnings from each $100 of income$40 → $45

The share has risen by 5 percentage points.

See how the points are calculated

In the calculation: Lasting profitability

▸Return compared with borrowing costWe compare the return earned in the business with its estimated borrowing cost after tax. A return of 12% and a borrowing cost of 4% leave a gap of 8 percentage points. A larger gap is stronger here. We average the yearly gaps to avoid relying on just one year; this comparison does not include the return shareholders require. For this company type we use property-company return on capital.Counts for 66.67% of this part of the score. Points: 0 percentage points gives 0 points; 8 percentage points gives 100.
▸Are property earnings keeping up with income?We look at the trend in FFO divided by property income. A rise from 40% to 45% means that $5 more of every $100 in income becomes adjusted property earnings. A rising share strengthens this measure; a falling share weakens it.Counts for 33.33% of this part of the score. Points: −2 percentage points per year gives 0 points; +2 percentage points per year gives 100.

Supporting owner payments

How much of adjusted property earnings is paid as dividends to owners?

15%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

In the calculation: Ability to support the dividend

▸How much property earnings is paid as dividends?We divide the dividend per share by FFO per share for the same period. A dividend of $3 against FFO of $4 means 75% is paid out. A smaller share leaves more room if property earnings fall. FFO does not deduct all spending needed on the properties.Counts for 100% of this part of the score. Points: Up to 60% payout gives 100 points; 75% gives 85; 90% gives 50; 100% or more gives 0.

The percentages assume the company pays dividends. Dividends are payments to owners. If it pays none, we leave out that part and share the score between the other four parts in the same proportions.

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. Enough information about debt and payment capacity is also 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

Property companies (REITs)

Property depreciation can make ordinary accounting profit less useful for assessing property operations. We use FFO, an earnings measure adjusted for property depreciation and certain other items. FFO is not cash left after maintaining and improving properties. We do not use AFFO here.

FFO helps us assess interest coverage, debt and dividends. Its positive years and largest decline show resilience. We use sales per share for downturn sensitivity, so the same FFO decline is not counted again in that part.

Property companies without usable FFO data follow the ordinary-company method.

Which years do we look at?

To see how the business handled difficult years, we look back over up to eight full financial years. For lasting profitability, we use up to five. Most historical checks need at least three usable years. With only three or four, confidence is Limited.

For current debt and dividend checks, we use the latest 12 months, often called TTM. If those figures are missing, we use the latest full financial year. A ratio always compares figures from the same period.

We do not count a rolling 12-month total as an extra financial year. We also do not pull in older years to fill gaps. The cards show the periods used.

How much information supports the score?

Data coverage tells you how much of the planned calculation we can support with usable figures, taking each measure's share into account.

High: at least 90% coverage. Good: at least 70%. Limited: at least 60%. We also need at least 60% of the debt part to be measured. Without that debt information, or below 60% overall coverage, we show no score.

Short histories of three or four years, certain substitute measures, and the insurance and financial-services methods limit confidence to Limited. The label describes the information supporting the score, not a guarantee about the future.