This month REITs (Real Estate Investment Trusts) have been separated from the GICS (Global Industry Classification Standard) Financial sector into a sector of their own. Even prior to the sector reclassification, investors have been attracted to REITs' strong performance and attractive yield. REITs differ from traditional companies in several important ways. Metrics that investors typically use to value or evaluate the attractiveness of stocks such as earnings yield or book-to-price are less meaningful for REITs. For active investors interested in understanding their REITs portfolio, an understanding of the relationship between REIT financial ratios and price appreciation is instructive.

Is dividend yield relevant? What about funds from operations (“FFO”), one of the most widely used metrics in the REIT space?

In this report , several metrics are examined that should be of interest to active investors. Key findings include:

• The most effective metrics are those that identify how “cheap” a REIT is relative to its trading price.
• Dividend Yield is a poor indicator for REITs selection.
• Watch the level and direction of analyst consensus price target.
• In a rising interest rate environment, NAVP and Analyst Upside were the most promising metrics.
• A strategy that combined four metrics yielded an annualized long-only active return of 5.68% and information ratio (IR) of 0.91.