Strength for property companies

See how well the business is equipped to handle difficult times.

The score in pictures

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

What we check

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.

Supporting property debt (35%)

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

Steady property earnings (20%)

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

Handling income setbacks (15%)

How deep was the largest fall in income per share?

Lasting profitability (15%)

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

Supporting owner payments (15%)

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

How to read the score

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.

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.

A strong business can still have an expensive share price. The score does not predict what the share price will do.

How we calculate the points

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.

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 sub-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 sub-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 sub-score. Points: 20% gives 100 points; 80% gives 0.

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 sub-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 sub-score.

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 sub-score. Points: 10% gives 100 points; 80% gives 0.

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 sub-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 sub-score. Points: −2 percentage points per year gives 0 points; +2 percentage points per year gives 100.

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 sub-score. Points: Up to 60% payout gives 100 points; 75% gives 85; 90% gives 50; 100% or more gives 0.

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.