Modeling Test: REIT 3-Statement and NAV Models

Introduction

Where the single-property modeling test asks you to value one building, the REIT modeling test asks you to model a whole company, and the jump trips up candidates who treat it as a generic 3-statement exercise with real estate pasted in. It is not. A REIT model has features a normal corporate model never needs: it rolls the income statement all the way to FFO and AFFO rather than stopping at net income, it carries a funding schedule because the company is forced to raise capital constantly, and it lives or dies on per-share discipline because that same capital-raising dilutes shareholders. The test usually comes in two parts, a 3-statement projection and a NAV model, and a strong candidate knows what makes each one distinctly a REIT exercise.

Three features set a REIT model apart from a standard 3-statement build, and naming them up front signals you understand the asset class. The income statement does not stop at net income; it continues to FFO and AFFO, because depreciation makes net income meaningless for a property company. Growth comes in two flavors that must be modeled separately: organic, same-store income gains, and external growth funded by raising capital. And because the 90% distribution rule leaves almost no retained cash, the model must include an explicit funding schedule, with the resulting share issuance feeding straight back into per-share metrics.

Same-Store NOI Growth

Same-store NOI growth measures the change in net operating income from properties owned across both periods, isolating organic performance from the effect of acquisitions, dispositions, and development. It is the cleanest read on whether a REIT is growing income from its existing portfolio rather than simply buying more buildings.

The contrast with a normal corporate model is sharp enough to be worth holding in mind as you build.

The reason the per-share focus is decisive deserves emphasis, because it is the single most common thing graders watch for. The standard reference for how these tests are structured and timed is the cross-guide modeling test format and execution guide.

The build follows a repeatable sequence, and keeping it in order is what produces a model that balances and audits cleanly.

The FFO and AFFO build itself is the heart of the income statement; the underlying mechanics are covered in from FFO to sustainable cash flow, and how the resulting per-share figures drive trading multiples in how REITs trade on FFO and AFFO multiples.

The second artifact is the NAV model, and it is effectively the single-property valuation repeated across the whole portfolio and aggregated. You capitalize each segment's forward NOI at a market cap rate to get gross real estate value, add other assets, and then subtract claims senior to common equity to reach equity value and NAV per share.

Marking the Claims to Fair Value

The detail that trips candidates is the subtraction step. Debt, preferred stock, and any other claims senior to common must be subtracted at fair market value, not book value, because in a rate-moved environment the difference is material. A model that subtracts book debt when fixed-rate borrowings are worth well below par understates equity value and misses a real benefit to shareholders. The full NAV build, including the segment-level capitalization, is the subject of the NAV walkthrough, and the conceptual treatment in net asset value REIT valuation. A complete test often asks you to reconcile the two outputs, the share price implied by the 3-statement FFO multiple against the NAV per share, which is exactly the premium-or-discount question in model form.

The grade turns on a handful of REIT-specific judgments rather than on raw spreadsheet speed. Reward goes to per-share discipline, a clean funding schedule, fair-value treatment of debt in NAV, and a model that ties the dividend back to AFFO and the 90% rule. Penalties come from the predictable places.

The funding requirement itself flows from the 90% distribution requirement, and the real-world equity tools that schedule represents, like ATM programs, are what fund the external growth a candidate must model rather than assume away.

Approach it the way you would the single-property test: lay out the full structure first, an assumptions block, the income statement to FFO and AFFO, the funding schedule, and a NAV tab, before refining any line. Then make the per-share story explicit, because that is what is being graded above all.

What separates a strong model here is treating the REIT as a story about growth that must be paid for. A REIT grows by buying and building, it funds that by raising debt and equity, and the only honest scoreboard is whether FFO and AFFO per share rise after the dilution. Build to that scoreboard, mark the NAV claims to fair value, and the model answers the real question the test poses, the same one the single-property DCF test poses one building at a time.