REIT calculator: dividend yield, FFO coverage, and monthly income from a REIT portfolio

• Each REIT is weighted by its market value in the portfolio, which is price times shares. The portfolio dividend yield is the average of each REIT's yield using those weights.
• FFO (funds from operations) is a cash earnings measure for REITs. Coverage is FFO per share divided by dividend per share for each REIT, averaged by weight. Above 1.0x, FFO is larger than the dividend. The lab flags anything under 1.2x.
• NAV (net asset value) is the estimated value of the REIT's properties per share. The NAV discount is NAV minus price, divided by NAV, averaged by weight. A positive number means the shares trade below NAV.
• Monthly income applies the portfolio yield to the amount you enter as total investment, then divides by 12. The after-tax figure subtracts one flat tax rate that you set.
• Liquidity, diversification, and inflation hedge scores use fixed weights chosen for this lab, such as a base liquidity of 85 and a higher figure for data center and industrial REITs. They are sample scores, not ratings of any real REIT.

The lab opens on five sample holdings: residential, commercial office, industrial, healthcare, and data center, with yields from 2.8% to 6.8%. Weighted by market value, the portfolio yield is 4.60%. FFO covers the dividend 1.5 times. The shares trade 5.4% below NAV on average. Applied to $50,000, the 4.60% yield pays $2,298 a year, or $192 a month. At a 24% tax rate that is $146 a month after tax. The lab's sample score is 64 out of 100, and it flags that a 4.60% yield is under 5%, which is low for an income goal. The sample REITs are made up for the lab and are not real securities.

• The five starting REITs are invented examples. To analyze your own, replace each holding's inputs with figures from the fund's reports.
• The amount invested and the holdings are separate inputs. Weights come from price times shares in the holdings list, while income uses the total investment you type, so the two can disagree unless you match them.
• Tax is one flat rate applied to the whole dividend. Real REIT dividends can be split between ordinary income, capital gain, and return of capital, and the lab does not split them.
• The yield is a snapshot of the yields you enter. It does not forecast dividend cuts or growth, and it does not include price change.
• The 0 to 100 scores combine weights set by this lab. Treat them as a way to compare your own inputs, not as a measure of quality.

Finance Quest is educational. It is not financial advice, and no calculator here knows your full situation.

A high yield can come from a falling price or from a dividend that earnings do not support. In the lab's sample portfolio, the commercial office REIT yields 6.8%, the highest of the five, but its FFO covers the dividend 1.0 times, the thinnest of the five. Comparing yield and coverage side by side shows whether a payout is backed by cash earnings. Coverage near 1.0x leaves no cushion if occupancy drops.

The lesson for this lab is in Chapter 15, Alternative Investments. Read the lesson

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