How do you find the intrinsic value of a REIT?
There are several calculations involved in estimating a REITs NAV, but the basic concept is simple: estimate the current market of the REIT’s portfolio, then add any other intangible assets, subtract all the mortgage-related liabilities, and then divide the NAV by the shares outstanding.
How do you analyze a REIT?
Book value ratios are useless for REITs, instead, calculations such as net asset value are better metrics. Top-down and bottom-up analyses should be used for REITs, where top-down factors include population and job growth, while bottom-up aspects include rental income and funds from operations.
How are REITs calculated?
The calculation to find a REIT’s yield is actually quite simple:
- Add up the REIT’s expected distributions over a 12-month period: If it pays quarterly dividends, multiply its most recently declared dividend payment by four. …
- Then, divide this annual dividend rate by the current share price of the REIT.
Do REITs trade at a discount to NAV?
Publicly traded U.S. equity REITs traded at a median 4.2% discount to their consensus S&P Global Market Intelligence net asset value per-share estimates as of Feb. … The data center sector traded at the largest premium to NAV, at a median of 20.3%.
Why REITs are a bad investment?
The biggest pitfall with REITs is they don’t offer much capital appreciation. That’s because REITs must pay 90% of their taxable income back to investors which significantly reduces their ability to invest back into properties to raise their value or to purchase new holdings.
What is the average return on a REIT?
REIT returns by subsector
| REIT Subsector | Total Return 1994-2020 | Annualized Total Return (Average Return) |
|---|---|---|
| Industrial REIT | 1,649% | 10.9% |
| Retail REIT | 854% | 8.3% |
| Residential REIT | 1,740% | 11.2% |
| Diversified REIT | 584% | 6.8% |
How do you know if a REIT is undervalued?
Price-to-FFO
Most REITs report FFO per share alongside their headline numbers, so it’s easy to find. When trying to gauge whether a REIT is cheap or expensive relative to peers, use the price-to-FFO (P/FFO) ratio as opposed to the traditional P/E multiple.
Why are REIT dividends so high?
Over-leveraged. A REIT may be paying high dividends because they’re using too much leverage to acquire their properties. They are quite vulnerable to any dips in the real estate market or spikes in vacancy if their real estate investment portfolio is overleveraged. High payout ratio.
Is REIT high risk?
REITs are more liquid compared to physical properties.
…
Total return:
| REITs | Property Companies | |
|---|---|---|
| Risk Profile | A REIT is a low risk, passive investment vehicle with a high certainty of cash flow from rentals derived from lease agreements with tenants | A property stock has a high development and financial risk |
How much do REITs pay out?
In contrast, the average equity REIT (which owns properties) pays about 5%. The average mortgage REIT (which owns mortgage-backed securities and related assets) pays around 10.6%.
What is a good payout ratio for REITs?
FFO is a better metric for how much a REIT is making. Second, while most investors look for payout ratios of 40–50% for typical dividend stocks, REIT payout ratios are often much higher. This is because REITs must pay out most of their income. A REIT with an 80% FFO payout ratio, for example, isn’t a cause for alarm.
Funds trading at a premium will have a higher price than their comparable NAV. A premium to NAV is most often driven by a bullish outlook on the securities in a fund, as investors are generally willing to pay a premium because they believe securities in the portfolio will end the day higher.
How are REITs performing in 2020?
As of Dec. 1, 2020, publicly traded U.S. equity REITs posted a -5.7 percent one-year total return. The self-storage REIT sector topped the chart with a 10.4 percent total return, beating the broader U.S. equity REIT index by 16.1 percentage points. The industrial sector followed with 9.2 percent one-year total return.