What type of multiples would you use for a company in the real estate sector?

  1. P / FFO Per Share
  2. P / AFFO Per Share
  3. P / NAV Per Share
  • FFO (Funds from Operations) = net income + D&A + losses on sale – gains on sale -interest income
    • FFO captures the cash flows earned from the core business of renting out properties, while reversing the impact of non-core or one-time items
  • AFFO (Adjusted Funds from Operations) = FFO + rent increases – recurring capital expenditures – routine maintenance
    • AFFO is a more accurate representation of the cash flows from a real estate company
    • AFFO adjusts FFO for the impact of rent increases and cash outflows involved in acquiring new properties and
      maintaining existing properties
  • Interest is core to business, so debt is important; equity value metrics are relevant while enterprise value metrics are not
  • NAV = Net Asset Value (Assets – Liabilities)
    • NAV is an especially common metric when valuing REITs