Question #17
Reading: Reading 33 Real Estate Investments
PDF File: Reading 33 Real Estate Investments.pdf
Page: 8
Status: Incorrect
Correct Answer: A
Your Answer: B
Question
Which of the following most accurately describes an approach to REIT valuation?
Answer Choices:
A. The discounted cash flow approach typically consists of intermediate-term cash flow projections plus a terminal value based on cash flow multiples
B. The P/AFFO approach avoids estimates and assumptions in its calculation
Explanation
In discounted cash flow REIT models, investors generally use intermediate-term cash flow
projections and a terminal value based on historical cash flow multiples. FFO does not
adjust for the impact of recurring capital expenditures needed to keep properties
operating. AFFO adjusts for routine maintenance type capital expenditures, but
assumptions and estimates (which may vary widely) are required in the calculation of
AFFO.