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

Published On - December 1, 2022

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

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