REIT Valuation | Real Estate Investment Trust Valuation

Real Estate Investment Trust Valuation | REIT Valuation

Real Estate Investment Trust Valuation is not that different from valuation of companies.

Michael Linton Linton Global Real Estate

Michael Linton
Linton Global Real Estate

The process still involves looking at public company comparables, precendent transactions, and DCF (discounted cash flow) analysis. With REITs, we are more focused on Funds From Operations FFO (FFO) and Adjusted Funds From Operations (AFFO) multiplies than Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) multiples.

The first step in the process is to set up your company comparables.

The Net Asset Value Model or NAV is the most common method used to valuate equity in a real estate investment trust. You could use replacement costs or replacement value as other valuation methods but the NAV model is the most common.

Dividends are a critical part of REITs capital structure and their cash flow statement and how they operate. So you can use discounted dividend models.

REIT Valuation | Real Estate Investment Trust Valuation

Miami Real Estate Fund

Miami Real Estate Fund

When evaluating Real Estate Investment Trusts, you will get a more precise picture by looking at funds from operations (FFO) rather than looking at net income.

REIT Valuation is More Art Than Science

Based on what the market is telling us. If you are coming from an engineering background or something else where you use very precise numbers and ironclad theoretical derivations. You cannot think like that when you approach valuation because it really is more art than science, and a lot of this is not based on fact or on theorems.

To qualify as a REIT with the IRS, the real estate company has to agree to pay out at least 90% of its taxable profit in dividends

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