Valuation of REIT

CFA Level II Alternative Investments
#1

Hi Fellows,

I have some difficulty in understanding the rational behind this formula…

Valuation of REIT using NET ASSET VALUE APPROACH

Last 12 months real estate NOI XXX

less:non cash rents (XX)

Add:full year impact of adjustments XX

PROFORMA cash NOI for last 12 months= XXX

Add:Net 12 months cash NOI XX

Estimated Net 12 months cash NOI XXX

Assumed cap rate %

Estimated value of operating real estate XXXXX

WHat is the rational behind getting Proforma cash NOI for last 12 months???

Also why is Non cash rent subtracted from AFFO calculations

#2

I have just read this reading, i do not know right now what exactly is the answer, but i am pretty sure that you should find solution in the reading. please read it again

#3

You are deriving value of NAV, which starts from Last Year NOI and making adjustments to it. Remember to get a value of property we always divide this year or upcoming NOI by a cap rate. In similar case we divide upcoming dividend D1 by (r-g) to get stock value. Non cash rent is subtracted to give more economic meaning of meausre, AFFO is similar to Cash Flow. You actually remove to effect of straight-lining.