Investing in REITs: Real Estate Investment Trusts, 4th Edition

Valuing REITs as a Group

Now that we've seen how individual REITs can be valued based on NAV analysis, P/AFFO ratios, and discounted cash flow and dividend growth models, can we also assess whether REITs, as an asset class, are cheap or expensive at any particular time?

Investors who bought heavily into REITs in the fall of 1997 or the spring of 2007 learned, to their regret, that sometimes all REITs can be overvalued—although that insight normally comes only with hindsight. Future stock price performance can be poor indeed following periods of overvaluation. Although, fortunately, REITs pay meaningful dividends while we wait, it can be very discouraging to watch the stock prices languish—or even drop sharply—for a couple of years.

We should ...