Real Estate · REITs
REIT Sector Primer
Equity REIT primer with an Excel valuation model. Covers property economics, FFO and AFFO, NAV, cap rates, leverage and peer comparison.
2026 Edition · data as of June 2026
- pages
- 37
- sections
- 15
- model sheets
- 13
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The full primer
£25 / ~$32
- 37 pages, 15 sections
- Worked examples and applied cases
- 2026 Edition, data as of June 2026
Excel model
Valuation template
£45 / ~$58
- 13 sheets (.xlsx)
- Runs the primer's worked valuations live
PDF + Excel model Best value
Both files together
£59 / ~$76
- The 37-page primer
- The 13-sheet Excel model
- £70 bought separately · £11 less
Complete Real Estate Library
All three Real Estate industries: three primers, three Excel models (Equity, Mortgage, and Infrastructure & Digital REITs).
Inside the primer
The 15-section contents, a worked valuation page, and the Excel dashboard.
Contents
- 01 How Equity REITs Make Money
- 02 Listed Equity REIT Types
- 03 Stabilised Assets, Development and the Value Ladder
- 04 Segments and Sub-Markets
- 05 Revenue Drivers: Generic NOI Build
- 06 Cost Structure: NOI to FFO and AFFO
- 07 Valuation Frameworks
- 08 Worked Example: Multi-Period Property NAV Engine
- 09 Worked Example: FFO and AFFO Bridge
- 10 Applied Cases: Industrial, Multifamily and Storage
- 11 Applied Cases: Retail, Net Lease and Senior Housing
- 12 Leverage, Dividends and External Growth
- 13 Operating Metrics and Screening
- 14 Risks, Benchmarks and Industrial vs Office
- 15 Mortgage REIT Contrast, Glossary and Cheat Sheet
Worked examples and applied cases · 37 pages · 15 sections · 2 worked examples
The Excel model
Educational material. This primer and its model are not investment advice or a recommendation to buy or sell any security, and they are not personalised. Worked valuations use illustrative calibrations, not fair-value estimates for any company.
Equity REITs own operating property, collect rent, and pay most taxable income out as dividends. Retained earnings are scarce, so growth is funded in capital markets priced every quarter. Valuation sits on two lenses: what the portfolio is worth through NAV and capitalisation rates, and what the market pays for distributable cash through FFO, AFFO and P/FFO. A generic industrial DCF or book-value screen misses that chain; property type sets the lease structure and which lens leads before you open a filing.
REIT valuation benchmarks by property type
Cap rates carry most of an equity REIT's value, and they differ by property type because lease length and demand risk differ. These are the bands the primer works inside, set against the implied cap rates Nareit backed out of listed prices in Q1 2026.
| Property type | Cap-rate band | Nareit implied cap, Q1 2026 | What sets the position |
|---|---|---|---|
| Industrial / logistics | 4.5-6.0% | 5.2% | Mark-to-market on rollover; coastal infill against inland bulk supply |
| Residential / multifamily | 4.5-6.0% | 6.4% | Twelve-month leases, concessions and new supply in the submarket |
| Self-storage | 5.0-6.5% | 5.9% | Month-to-month repricing; occupancy in the low 90s is normal |
| Retail (quality-dependent) | 5.5-8.0% | 6.2% | Tenant sales per square foot, which predict renewal |
| Net lease | 5.5-7.0% | Not published | Tenant credit and the spread over cost of capital on new deals |
| Senior housing (operating) | 6.0-8.0% | Not published | Census, rate per unit and labour cost, all inside NOI |
| Office | 6.0-8.5% | 7.7% | Lease duration, demand risk and expenses the landlord keeps |
Cap rates sit on top of the 10-year Treasury, held at 4.50% in the primer's worked cases, so industrial's 5.2% implied cap carries about 0.7 percentage points of property risk. Residential's implied cap sits above its private-market band, the kind of gap the implied-cap check exists to catch. Within a type, gateway against secondary markets can move the cap 50-100 basis points or more. On the earnings side, Nareit's tracker had the whole listed sector at 16.8x FFO, and the primer screens AFFO payout at 70-85% and net debt at 5-6x EBITDAre.
Worked example: a REIT NAV valuation
Take a hypothetical diversified REIT with three stabilised segments, $500 million of development held at cost, $5,000 million of net debt, $500 million of preferred equity and 400 million shares. The primer's screening build capitalises each segment's NOI at a cap inside its band.
| Step | Amount |
|---|---|
| Industrial NOI $400M at a 5.0% cap | $8,000M |
| Residential NOI $275M at 5.5% | $5,000M |
| Retail NOI $260M at 6.5% | $4,000M |
| Plus development at cost | +$500M |
| Gross asset value | $17,500M |
| Less net debt and preferred equity | -$5,500M |
| NAV | $12,000M |
| NAV per share (400M shares) | $30.00 |
| P/NAV at an illustrative $27.00 share price | 0.90x |
| Implied cap at $27.00 ($935M NOI over $16,300M enterprise value) | 5.74% |
At $27.00 the shares sit 10% below NAV, and the market's implied cap of 5.74% is above the 5.5% blended cap in the model. Those are the same fact seen twice: the market is pricing asset risk the model has not. Lift every segment cap by half a point and property value falls 8.4%. Net debt does not move, so NAV falls 12% to $26.43 per share and the same $27.00 price becomes 1.02x NAV. The discount was a cap-rate disagreement, not a bargain.
The earnings lens tells the same story at 12.3x FFO. The primer bridges this REIT from net income to $2.20 of FFO and $1.95 of AFFO per share, and runs a ten-year property DCF with a sensitivity grid on a separate portfolio; the Excel model does both on your own properties.
Which REIT valuation method fits which company
| Company type | Primary method | Check with | Why |
|---|---|---|---|
| Pure-play industrial or storage | Segment NAV | P/FFO on core FFO | Asset quality and mark-to-market drive a re-rating |
| Multifamily | Same-store NOI trend | NAV on a residential cap | Concession cycles hit earnings before they reach NAV |
| Net-lease acquirer | AFFO yield and payout | NAV on in-place rent | The acquisition spread matters more than same-store growth on long flat leases |
| Senior housing operator | Operating-portfolio same-store NOI | Segment NAV with an operating-risk discount | Labour and census sit in NOI, so operating leverage dominates |
| Quality retail | Tenant sales productivity | NAV on mall segment caps | Sales per square foot predicts whether tenants renew |
| Diversified | Segment-by-segment NAV | Implied cap against your blended cap | One cap across mixed types has already decided the answer |
What the full primer adds
The primer maps issuer types and the value ladder from stabilised assets through development, then builds rent into NOI and NOI into FFO and AFFO, with NAV and earnings multiples on the same rate floor. Two worked examples carry the method: a multi-period property NAV engine and an FFO/AFFO bridge. Applied cases then run the framework across industrial, multifamily, storage, retail, net lease and senior housing, before leverage, dividends, operating metrics and screening.
Free guides on the site unpack the individual pieces so you can revise one concept without reopening the full PDF; research profiles apply the same screens to filed names. The companion Excel model has thirteen sheets, from the per-property NAV engine through an FFO/AFFO bridge to a screen, with the rate and cap-rate assumptions on one sheet, so the property-level build re-prices whatever equity REIT you load into it.
Sheets: Quick Start, Instructions, Assumptions, Property 1, Property 2, Property 3, Consolidated, Cap Rates, Leverage, FFO-AFFO Bridge, DDM, Sensitivity, Dashboard.
REIT valuation: free guides
- What Is FFO? Funds From Operations Explained
- FFO vs AFFO: What's the Difference and Why It Matters
- How to Calculate NAV for a REIT: Step-by-Step
- Commercial Real Estate Cap Rates by Property Type 2026
- REIT Implied Cap Rate: Reading Discount to NAV
- REIT Screening Checklist: 8 Metrics to Track
- Industrial vs Office REITs: Key Differences for Investors
- REIT Net Debt to EBITDA by Company: 2025 Ranked
REIT valuation FAQ
- How do you value a REIT?
- Through two lenses that have to agree or explain why they do not. The asset lens builds net asset value: each segment's net operating income (NOI) divided by a cap rate for that property type, plus development at cost, less net debt and preferred equity, per diluted share. The earnings lens prices distributable cash through FFO, AFFO and price-to-FFO. The implied cap rate, NOI divided by enterprise value at the listed price, is where the two meet.
- What is a normal P/FFO for a REIT?
- Nareit's industry tracker put all listed US equity REITs at 16.8x FFO in Q1 2026. The multiple compresses when the 10-year Treasury rises, so read it against the rate backdrop. Compare REITs only on a labelled basis: core and normalised FFO are company-defined, and AFFO has no industry-standard definition at all.
- What cap rate should I use in a REIT NAV?
- One per property type, inside a band: 4.5-6.0% for industrial and multifamily, 5.0-6.5% for self-storage, 5.5-8.0% for retail and 6.0-8.5% for office in the primer's framework. Gateway versus secondary markets can move the cap by 50-100 basis points or more within a type. Check the result against the implied cap rates Nareit backs out of listed prices; a stale transaction cap is lagged, not conservative.
- Why do REITs trade below NAV?
- Usually because the market's cap rate is higher than the analyst's. If a REIT trades at a NAV discount and backs out a higher implied cap than your model uses, your caps are probably stale. A discount on both NAV and P/FFO points to asset risk you have not capitalised. What closes it is organic same-store growth, deleveraging with asset sales at or above NAV, or transaction evidence that confirms your caps.
- What is the difference between FFO and AFFO?
- FFO follows the Nareit definition: net income plus real-estate depreciation and impairments, less gains on property sales. AFFO then deducts recurring capital expenditure and adjusts for straight-line rent and other items each REIT defines itself. AFFO is the closer measure of distributable cash, so payout is screened on it: 70-85% is sustainable and above 90% leaves little room before a cut.
See this methodology applied to a real company:
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