There are many investors who want to assess the real value of the real estate investment trust. But most of the time the investors uses the EPS formulae to estimate the value of real estate investment trust. This technique of EPS calculation (Earning per Share) is not at all a correct method. Sometimes investors try to apply Price to earning ration this method will also not apply in this case. Investing in Real estate requires FFO method to make the correct estimate of the price in the real estate trust investment that you need to make.
Therefore let’s find out the ways for analyzing and calculating the value of investment in the real estate investment trust.
- Fund From the operation:- In the Footnotes the reconciliation statement of the companies are required this is known as FFO. With the net income this calculation comes in to existence. The general mode of calculation involves adding back the depreciation to the net income and the deductions from the gains from the property that is depreciable. Subtractions from the gains are done by assuming they are non- non-contributable and non-recurring in the REIT sustained dividend paying capacity. The FFO statement must be reported but it poses a weakness. The capital expenditures cannot be deducted from it. This is required to maintain the portfolio of the properties. The shareholders must maintain their holdings.
- Application of AFFO method:- Adjusted AFFO is the most accurate method for calculating the investing in Real estate. In this method the capital expenditures of the shareholders can be easily deducted to estimate the residual cash flow available with them. The REIT can be measured with much more accuracy due to the application of this method. There are several advantages of using this method of calculation for analyzing the investment value in the real estate like:-
- The price of the rent increases.
- It will also help to improve the rate of occupancy.
- It will also help to upgrade and upscale the level of your property. This will also help to attract the attention of high value tenants to the property to a great extent.
- The chances of external growth prospects are there and FFO growth can be ensured through acquisition. This will upgrade the value of property as accurate calculation is done on it before the process of acquisition.
Hence, the above two methods are applied to get value of the real estate investment trust. This will also help you to check the valuation of the property time to time and you can do the updation of your property whenever you find it essential for your sell of your property. These two methods will provide you a clear picture that how much you should invest in real estate to get better returns on your investment in future. Just you need to follow the process of calculation in a proper manner. These two are the most accurate way to analyze the value of property. This is the real method for calculating the REIT.