Hi All,
I had a few questions on REIT valuation that I was hoping someone who works in a Real Estate IB group could help answer. I appreciate your help in advance!
How often is a DCF used? If so, do you build out a full REIT Operating Model and then get to FCFE and discount that to present?
How often is a DDM used? If so, is it just the AFFO * Payout Ratio? So you really just need to build out an income statement and balance sheet in that case since you don't need to worry about debt repayments/schedules like you do when using FCFE?
In a NAV model, how do you account for the Joint Venture line item on the balance sheet?
In REIT M&A accounting, are there any specific adjustments made that only REITs account for? Like in bank modeling, there is a Core Deposit Intangible, etc.
Thanks so much for your help!
anyone? would really appreciate the help
Check your inbox, sent you a 101 on REIT valuation.
maddux - would you mind also sending me your 101 on REIT valuation. Also curious about this. Thanks!
Maddux, Any possibility you could send me your 101 insight as well? I am trying to grasp an understanding of the in's and out's of modeling PE alternative inv. Next month I am starting the WSO REIT technical course so I am seeking to absorb everything I can. Let me know, thanks.
Hey maddux,
Could you also send me your 101 on REIT valuation? Thanks so much, appreciate it.
Would you be able to send it to me as well?
Thanks Prospie, really appreciate you taking the time to write this. In regards to AFFO = FCFE, I am confused on one point. For a regular company, you deduct NWC and CapEx in your free cash flow calc to account for the company's reinvestment in the firm. For a REIT, you only deduct maintenance CapEx to maintain current buildings, and not the cash spent on acquisitions, developments, or cash received from dispositions. I was having trouble grasping why this is the case? Don't you need to assume the REIT uses some of the AFFO to grow its business?
But what I definitely failed to do a better job of detailing for you was this: the model in mind here has cash flow (after paying the dividend) being invested in new deals that create new AFFO based on a yield assumption across the board. That new AFFO is added to current portfolio AFFO each year for total cash flow, which is dsicounted to today.
I know that sounds complex but in this simplified case it's just a handful of line items. I can send if you want.
Thanks, Prospie. That helped explain the concept better. So basically AFFO being discounted = AFFO being paid out in Dividends + Value Creation from AFFO being reinvested? If you could send over the spread sheet that would be great as well!
with the model i'm describing, you can play with the payout ratio and see how a higher payout ratio could reduce future value creation.
Hmm.. sorry if I am still not getting it but - since the AFFO is only discounting the cash flows after the dividends (meaning after income on the Same-Store properties).. the AFFO being discounted is value creation rather than complete value. So you would add the value creation from discounted AFFO to the current Same-Store properties?
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