For a good majority of REIT investors, the main impetus behind the decision to put money in REITs will be Yield. The main attraction of REITs, in comparison to other forms of securities, lies in its ability to provide a steady stream of dividends year after year for the shareholder.
However the REIT investor needs to understand that in measuring the performance of a REIT, there are two types of yield metrics that you need to be aware of. They are the Property Yield and the Distribution Yield. This entry will discuss Property Yield.
Property Yield is a useful indicator of how much yield a REIT's portfolio of properties is generating. Property Yield is calculated by obtaining the total amount of Net Property Income (NPI) generated by all the properties in the portfolio, divided by the total value of the properties in question (based on the latest property valuation) and multiplied by one hundred to give you a percentage.
As an equation, this is expressed as Property Yield = (Net Property Income/Property Value) X 100
Property Yield will give you an indication of the earning power of the portfolio of properties a REIT holds. A good Property Yield percentage is a good indicator of the REIT's ability to generate income in relation the value of property that it holds. However it is important to note here that Property Yield is not the yield that the REIT investor obtains. The yield that a REIT investor receives is known as the Distribution Yield.