FFO Yield Method
The cost-of-equity proxy used for REITs and other high-payout pass-through structures, computed as (current FFO per share / current market price per share) + expected long-run FFO growth. The method substitutes for CAPM in REIT valuation because the 90%-of-taxable-income payout requirement under REIT rules means earnings retention is structurally constrained — most of the required equity return must arrive as current cash yield, not as retained-earnings growth. A REIT yielding 6% on FFO and growing FFO at 3% has an implied cost of equity of 9%; this is structurally the dividend-discount-model equivalent applied to FFO rather than dividends.
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Related terms
Absorption Rate · AFFO per Share · Allowed Return on Equity · Alternative Investments · Anchor Tenant · Assets Under Management
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