Exploring REIT Valuation, Part 1

Cover Image for Exploring REIT Valuation, Part 1
Fritz Johnson
Fritz Johnson

I don’t know how REITs (Real Estate Investment Trusts) are valued… by finance professionals, at least! This is the first in a series of posts about me figuring it out.

I’m wading my way into financial analysis with no college education or formal training – just a passable grasp of simple math, some cursory knowledge of how the real estate business works, a wealth of software engineering skills, and of course, the entire English language Internet.

The goal of this series isn’t to teach a beginner how things are done in the world of finance. I wouldn’t know what to write! It’s an exercise in (hopefully) clear thinking that someone at any skill level might enjoy.

The object of the game

This series of posts ties in with a sort of game I’m playing. The object of the game is to determine the intrinsic value of a REIT from what one might call “First Principles” – foundational ideas that don’t require the assumption of any other knowledge.1 “But wait!”, you might say, “You mentioned using the Internet as a resource just two paragraphs up! What’s keeping you from just reading Investopedia’s guide to REIT valuations?”.

As that imaginary peanut gallery points out, that’d largely defeat the challenge. Sure, I’d come out with a better understanding of how things are typically done in finance – and it’s nearly certain to be more correct than any theory I craft. However, I don’t really care to just understand HOW things are done. I’m here to learn WHY they’re done that way. This isn’t a particularly mind-bending concept, but consider it a warmup for how explicit I seek to be in this series.

Mind you, I’ll cut corners where it makes sense. Some ideas are too self-evident to be worth spelling out, even here – so I’d appreciate you not getting clever in the comments if I make a minor leap of logic.

The rules of the game

Whether it’s tennis, marbles, or unicycle football, games must have rules.2 The game we’re playing here is no different – and the rules I’ve set are as follows.

  • No reading or otherwise considering explicit “guides” or explainers on how to think about something I’m trying to understand. For example, REITs get special tax treatment. It’s entirely up to me to figure out how that treatment plays into my theory of intrinsic value.
  • Terminology, however, is always fair game – if I don’t know a word or what it means in context, I can look it up.
  • I’m doing this mostly for fun. While I intend to take the task at hand seriously, if I have to choose between rigor & enjoyment, I’ll go with the latter.


  1. James Clear wrote an excellent article on SpaceX & first principles thinking here.
  2. I’d be remiss to leave out Calvinball, the exception that proves the rule.