skills/sector-analysis/references/modules/M094-reits-analyst-playbook.md

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<!-- Module: 094 | Title: REITs Analyst Playbook -->

## PART XV - SECTOR PLAYBOOKS | MODULE 094

# REITs Analyst Playbook

> Mission. Build a sector-specific research system for REITs that converts operating data into financial outcomes, highlights the accounting areas most likely to distort comparability, and selects valuation methods that reflect the sector's economics.

## Economic engine and binding constraints

Model property-level occupancy, rent, mark-to-market, same-store NOI, lease expirations, concessions, capex/TI/LC, development pipeline, debt maturities, NAV, and AFFO. Separate accounting FFO from recurring economic cash available to equity.

## Primary KPI stack

| KPI | Construction / analyst control |
| --- | --- |
| occupancy | Occupied leasable area/units divided by total available leasable area/units, typically average or period-end as stated. Validation: Recalculate independently from cited source data; verify definition, period, units, scope, signs, and any reconciliation to reported financial or operating totals. |
| same-store NOI | Property revenue minus property operating expenses for the constant-property pool, excluding acquisitions, dispositions, and development per issuer definition. Validation: Tie the dollar measure to filed statements/footnotes; reconcile classification adjustments, one-time items, acquisitions/FX, and period consistency before using it analytically. |
| rent spreads | New or renewal rent per square foot/unit minus prior expiring rent, divided by prior expiring rent, for comparable leases. Validation: Recalculate independently from cited source data; verify definition, period, units, scope, signs, and any reconciliation to reported financial or operating totals. |
| lease expirations | Annual base rent or square footage scheduled to expire by period divided by total annual base rent or occupied area. Validation: Recalculate from same-scope numerator and denominator; confirm period, units, cohort/geography, and issuer definition; reconcile material differences to filings or operating data. |
| AFFO | AFFO = FFO adjusted for recurring capital needs and other economically recurring items |
| cap rate | Cap rate = stabilized NOI / property value |
| development yield | development yield = annualized economic output / current market value or invested base; match numerator and denominator. |
| net debt/EBITDA | Net debt = interest-bearing debt + debt-like obligations - excess cash - non-operating liquid investments |



## Sector-specific accounting and comparability traps

- Straight-line rent: reconcile issuer treatment with peer treatment and quantify the effect on reported growth, margin, cash flow, capital, or valuation before comparing outputs.

- Tenant allowances: reconcile issuer treatment with peer treatment and quantify the effect on reported growth, margin, cash flow, capital, or valuation before comparing outputs.

- Impairment: reconcile issuer treatment with peer treatment and quantify the effect on reported growth, margin, cash flow, capital, or valuation before comparing outputs.

- Joint ventures: reconcile issuer treatment with peer treatment and quantify the effect on reported growth, margin, cash flow, capital, or valuation before comparing outputs.

- Secured versus unsecured debt: reconcile issuer treatment with peer treatment and quantify the effect on reported growth, margin, cash flow, capital, or valuation before comparing outputs.

## Valuation frameworks

- P/AFFO: equity value per share divided by normalized AFFO/share after recurring capex and non-cash/one-time adjustments are consistently treated.

- NAV: mark identifiable assets and liabilities to economic value, subtract debt and other claims, and divide residual value by diluted shares; document commodity/discount-rate assumptions.

- Implied cap rate: property NOI divided by enterprise value attributable to operating real estate, adjusting debt, development, JV interests, and non-income assets.

- Dividend yield: annualized sustainable common dividend divided by share price; test payout coverage, regulatory/capital constraints, cyclicality, and reinvestment needs.

## Sector diligence questions

- What is the most important leading indicator for REITs, and how many months does it lead reported revenue or cash flow?

## Sector stress and falsification

- Stress occupancy and same-store NOI together in the direction most likely to break the equity story; flow the result through working capital, capex, liquidity, financing, dilution, and valuation.

- Explicitly test straight-line rent. Determine whether it can make the reported sector comparison look better or worse without equivalent economic change.

## 99-point standalone execution extension

### Model architecture and forecast chain

Model same-store NOI, occupancy, rent spread, lease maturity, tenant credit, development, acquisitions/dispositions, recurring capex, debt, and shares.

### Leading-indicator dashboard

Track leasing activity, market rents, vacancy, cap rates, transaction volumes, financing spreads, construction supply, and tenant health.

### Primary-source map

SEC filings and supplemental packages; property-level leasing disclosures; Census construction data; local assessor/permit records; broker market data where available; debt maturity and secured-financing documents.

### Accounting normalization test

FFO/AFFO definitions, straight-line rent, tenant improvements, leasing commissions, unconsolidated JVs, and development capitalization need reconciliation.

### Valuation implementation

Use NAV, implied cap rate, AFFO/FCF, and property-level DCF with leverage.

### Worked numerical mini-case

> Illustrative NOI/NAV case.

Same-store NOI is $400m and cap rate 5.5%, implying about $7.27bn gross property value before development, debt and other claims. A 50 bp cap-rate expansion lowers that value to about $6.67bn.

Reconcile AFFO for recurring capex, leasing costs and straight-line rent, and model lease rollover rather than relying on headline FFO.

### Monitoring and falsification cadence

Breaks include tenant distress, refinancing at uneconomic rates, oversupply, development overruns, cap-rate expansion, or recurring capex above AFFO assumptions.

At every quarterly update, rebuild the driver bridge from operating units to revenue, margin, cash flow and valuation; compare leading indicators with the prior forecast; record definition changes; and precommit the threshold that would trigger a thesis reset rather than a cosmetic estimate change.

## Sector exit standard

The REITs work is complete only when the analyst can explain the business in its native operating units, reproduce the KPI history, identify the binding growth constraint and marginal price setter, normalize sector-specific accounting, quantify a coherent adverse case, and translate the current market price into the operating expectations that must be met or exceeded.