REIT Valuation Using Funds From Operations (FFO) and Adjusted Funds from Operations (AFFO)
Funds from Operation (FFO) FFO amends reported earnings and is a popular measure of the ongoing operating income of a REIT or REOC. It is calculated as follows: $$ {\begin{array}{l|r} \text{Accounting Net Earnings} & XX \\ \hline\text{Add: Depreciation expense}…
Net Value Per Share (NAVPS) in Publicly Traded Real Estate Securities Valuation
NAVPS refers to the (per-share) amount by which assets exceed liabilities. The amount is computed using current market values, as opposed to accounting book values, divided by the number of shares outstanding. NAVPS is generally considered the most appropriate…
Types of Publicly Traded Real Estate Securities
The primary type of REITs, the equity REITs, are keenly managed enterprises that seek to maximize returns from their property portfolios by applying management skills in operations and finance. Retail or Shopping Center REITs This class comprises shopping malls…
Basic Forms of Real Estate Investments
Real estate investments involve unique, heterogeneous assets in fragmented markets with infrequent transactions and high costs. Investments range from stable, income-producing properties (core real estate) to speculative, opportunistic investments (e.g., new developments, mezzanine debt, distressed situations). – Core: Stable…
Pricing and Valuing Equity Swap Contracts
Equity Swaps An equity swap is an OTC derivative contract in which two parties agree to exchange a series of cash flows. In this arrangement, one party pays a variable series determined by equity. The other party pays a variable…
Pricing and Valuing Currency Swap Contracts
A currency swap is an agreement between two counterparties to exchange future interest payments in different currencies. The payments can be based either on a fixed interest rate or a floating interest rate. By swapping future interest obligations, the two…
Pricing and Valuing Interest Rate Swap Contracts
Swaps are typically derivative contracts in which two parties exchange (swap) cash flows or other financial instruments over multiple periods for a give-and-take benefit, usually to manage risk. Both swap contract parties have future obligations. Therefore, similar to forwards and…
Pricing Fixed-Income Forward and Futures
A coupon-paying bond’s pricing and valuation are the same as those of a dividend-paying stock. The difference is that the cash flows are coupons and not dividends. Fixed income forward and futures have several problems that are related to the…
Interest Rate Forward and Futures Contracts
The most used interest rate in the derivatives market is the LIBOR which stands for London Interbank Offered Rate. LIBOR is the rate at which London banks can borrow from one another. When the loans are in dollars, they are…
Pricing Equity Forwards and Futures
A forward contract is a contract that promises to buy or sell an asset on a specific date in the future at a prearranged price. We need to construct a portfolio with cash flows equal to the forward to price…
