Amb Case Solution
Do you believe that EPS, FFO, or NAV is the most appropriate metric for valuing a REIT? What do you see as the benefits and drawbacks of each measure?        Because these metrics have different definitions between non-GAAP and GAAP standards, when entering into public capital markets, they are required to be converted into GAAP standards. As a result, this situation makes it âdifficult to evaluate the real operating performance of REITs and compare those results across periodsâ.  Because such industry-specific metrics were not consistently calculated, it was difficult for users of REIT financial statements to compare operating results. According to Moghadam, when companies utilize these financial terms, they donât give a specific definition about these terms and wonât state this action to the public. EPSProïŒRules are clear and are policed by the accounting profession, which benefits maintain a good investor relationships.FFO:Pro: an alternative to GAAP net income specifically for the REIT industry and can reflect the true operating performance of REITs Con: as there is no common definition about FFO, which means that FFO was not applied consistently across the industry, executives use the numbers that they use to calculate FFO, such as whether or not adding back depreciation, including gains on the sale of depreciated property and including property maintenance costs.NAV:Pro: âREITs were fundamentally a collection of real estate assets and should be approach on a âsum of the partsâ basis, using NOI and divided it by a factor known as cap rate (a risk-adjusted rate of return on-and-of capital that took into account such factors as property type, location, quality and age, and expected demand growth.â It can also help REIT managers to create a floor under the stock price.âCon: âit was a backward-looking calculation, which failed to take into account managementâs ability to create future value by trading and developing properties. Also, valuations could be misleading at extreme ends of the economic cycle or when capitalization rates deviated substantially from historic averages. In addition, some REIT managers said that NAV created an anchor to the share price.â
Essay About Real Operating Performance Of Reits And Such Industry-Specific Metrics
Essay, Pages 1 (352 words)
Latest Update: April 2, 2021
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