Real Assets

Core Concepts

Property Income and Return Metrics

• NOI (Net Operating Income): effective gross rental income (after vacancy) minus operating expenses; excludes debt service, capex, and depreciation.
• Cap rate: NOI divided by property value — the unlevered property yield; lower cap rates mean higher valuations.
• Income-approach value: NOI divided by the prevailing cap rate for comparable properties.
• Cash-on-cash return: annual pre-tax cash flow (NOI minus debt service) divided by total cash invested — the levered equity yield.
• GRM (Gross Rent Multiplier): price divided by gross annual rent; a quick screen that ignores expenses, vacancy, and financing.

REITs and REIT Metrics

REITs must distribute 90%+ of taxable income as dividends and trade on exchanges like equities. Sectors include residential, office, retail, industrial, data center, healthcare, self-storage, and specialty.

• FFO (Funds From Operations): net income plus depreciation minus gains on property sales — the standard REIT earnings measure, since real estate depreciation overstates actual value decline.
• AFFO (Adjusted FFO): FFO minus maintenance capex and straight-line rent adjustments — the conservative measure of recurring distributable cash flow.
• P/FFO and P/AFFO: the REIT equivalents of P/E; compare within the same sector.
• NAV premium/discount: share price relative to per-share net asset value of the underlying properties; indicates market sentiment.