REIT valuation

REITs are composed of a portfolio of properties and as a result, its valuation depends on the characteristics of the entire portfolio. Value estimates for a REIT can be income-based or asset-based.

Income-based Approach

The income-based approach is similar to the direct capitalisation approach (see real estate valuation) for a specific property and uses some measure of cash flow (e.g. FFO) and a cap rate.

Asset-based Approach

The net asset value of the REIT is estimated by subtracting total liabilities from the total value of the real estate assets, and dividing by the number of shares outstanding.

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