Modelling and Valuing a REIT
Hi WSO,
I am doing a research report/valuation on a Canadian-based REIT (TSE:BAM.A). Does anyone have suggestions on what to model for the firm and what valuation format to use. It seems that a NAV would be appropriate but time consuming. A DCF is also applicable but would be riddled with forecasting errors for all line items due to different sensitivities across all line items which would be hard to model.
Please let me know if you have examples or experience valuing a REIT and what valuation model you prefer.
-George Robert
I might be a little off on this, but for REIT's the most commonly accepted way of valuing them is through Funds From Operations (FFO). FFO is intended to make adjustments on Net Income that accounting methods may distort in order to find the true value from operating cash flow. Simply, FFO = Net Income + Depreciation + Amortization - Gains on Sale of property.
You should be able to find all those items from BAM.A financial statements.
Not sure if this is for work or school but I would definitely expect to see an NAV/Capitalization tab along with an income statement that rolls to both FFO and AFFO (along with BS/CF/assumptions/etc.). Per share metrics should include: FFO, AFFO, EBITDA and Operating Cash Flow. I would also want to see the full CAM/expense break-down along with a full blown debt schedule.
Thank you very much, along the lines of what I had done already. Used FFO and AFFO to value different segments and made a sum of parts NAV. Thanks again
Help: REIT NAV data (Originally Posted: 03/07/2011)
Is there any database which gives daily share price discount to adj NAV data for REITs listed on European exchanges (AIM, Euronext etc). I have access to SNL, IPD, Bloomberg at my school but haven't been able to find this data. I know I can calculate this on my own from share prices and adj NAV data but I have over 200 stocks and it would take weeks to do this. Can anyone help?
Thanks
P.S- I posted this in the IB forum as I guess RE banking comes under that?
Bump. Anyone?
Maybe Greenstreet ???
Thanks, I'll check if I can get access through my uni. Anyone else?
Anyone know of any good REIT valuation textbooks / modeling resources? (Originally Posted: 01/17/2014)
Started recently in a RE IB group and am trying to get up to speed regarding valuation and modeling asap.
Are there any good REIT valuation books? Or any useful learning resources?
BIWS has an online course.
Yeah I've seen the course... would prefer not to spend $250...
REIT valuation textbooks/modelling resources include 1. Real Estate Finance and Investment 14th ed by Brueggeman, Fisher which is a leading 2. Real Estate Finance 9th Edition - John.P.Wiedemer, K.Keith Baker 3.Global Real Estate Trusts, Process and Management by David Parker which specifically covers IB/PE/Funds Management and Cap Trans, it is quite comprehensive would be regarded as a leading book of REIT/PE practitioners I'm sure i have some other stuff lying around my computer
- PM if interested, willing to share my copies
Help Valuation Model For Reit (Originally Posted: 08/27/2014)
Hi,
I had an interview for research position in a BB.
After the interview, I was asked to perform an equity research valuation of a REIT. The REIT that I need to value has MBS and CMBS on the asset side as well as repo and IRS on the Liability side.
I am not sure what model to apply NAV or BV method.
Many thanks.
Honestly, try to do a combination of DCF and Market (Previous Transactions/multiples). Find an average value by using a football field and go with that. Each asset category needs to be broken down, but of course, not into minute detail since this is still basically an approximation.
thats not how you value a REIT.
REIT Valuation (Originally Posted: 12/18/2013)
Is FFO (funds from operations) basically the same as adjusted levered free cash flow? (adjusted meaning you subtract non-recurring items like gains on sale of properties) ?
I have a real estate ib interview and if they ask me how to calculate FCF do I give them the standard answer, or a FFO definition.
Also, when valuing a REIT... if you build a DCF, are you projecting out AFFO and then discounting it to get NPV.. or FCF?
Little confused here... this may be a stupid question...
Give them the FFO definition. And yes, you discount AFFO for the DCF model.
thanks =)
That is correct regarding the AFFO. Also, as a heads up, not all REITs call it AFFO. Many refer to it simply as Cash Available for Distribution (CAD).
You also have to take out non-cash rent. For example, instead of paying the landlord 500 in rent, you pay 475 and mow his lawn. That's taking out to arrive at affo.
Lol for some reason your example made me laugh
hi, in order to calculate FFO.. Do I have to subtract Net Valuation Gains on Investment Property?
Why might a DCF be useless for a REIT? (Originally Posted: 10/25/2015)
Dude, stop just posting your hw or potential interview questions on here if you aren't going to make any effort to learn.
If you genuinely want to learn, then tell me about what a DCF is good for and then tell me about the structure of a REIT (i.e. how is cash flow generated). Once it seems like you actually tried to grasp what is going on, then I'd be happy to answer your question. But at least try before coming here.
How do you model Taxes for a REIT? (Originally Posted: 05/02/2016)
I am practicing a model on the company Iron Mountain (IRM) and it appears they became a REIT two years ago.. How exactly would I go about projecting taxes on my income statement?
Maybe hold it as a percentage of operating income? Then project out an average of the historical percentages (so if taxes for FY2013 were 20% of op. income and FY2014 taxes were 19% of op. income, I would project out 19.5% for 2016, 2017 etc) . I haven't modeled this out before so I might be wrong but it's one way I'd start thinking about it.
Have never really modelled REITs, but wouldn't it be 0% or near 0%?
There are no corporate taxes, unless a REIT has a TRS.
Property taxes are considered OpEx for REITs, usually ~1% of asset value; but very difficult to model appropriately.
If you're practicing modeling and you have no banking experience, IRM is a horrible case study in the sense that they are an extremely complex company with a very intricate capital structure.
Would it work to project the average historical tax margin as a percent of gross profit then? So maybe adding it as another line under SG&A? Curious to know if I was on the right track- thanks!
Mortgage REIT Model (Originally Posted: 08/20/2014)
I have a case study coming up and it would be extremely helpful if someone can show me their Mortgage REIT model. I would greatly appreciate it!
I believe mortgage REIT act more like banks and financial institutions according to my BIWS course
To all the REIT, REPE office acquisitions analysts, do any of you have model templates that you are able to share? (Originally Posted: 08/18/2017)
I have the BIWS REPE office acquisition model. However, I am curious if any REIT or REPE acquisitions analysts have a copy of some of the templates you use on a day-to-day basis that you are willing to share. Thanks
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