Previously, I shared about Quantifying REITs Fundamental, which we analyze REIT as a whole and come out a factor value, instead of using common filtering method for REITs selection. For this post, let’s explore how can we make use of those factors for REITs Valuation.
Before we start, let’s go through again some common methods for REITs valuation:
i) Reversion to Mean Approach
– This is a concept in which stock price would move back to its long term average price, over time. Instead of solely look at “price”, investors look at metrics like historical P/NAV, historical dividend yield or historical yield spread for the mean price. For detail, you could refer to my previous post, Relative Valuation for REITs
ii) Dividend Discount Model, DDM
As REIT is more for income play, dividend discount model (DDM) is more suitable than discounted cash flow method. This is based on the concept that stock intrinsic value is