"...not to rely on shortcuts (cap rates/ independent valuations...

"...not to rely on shortcuts (cap rates/ independent valuations etc) even for somewhat commoditised type assets - start from first principles."

Yes, Indeed.

And the ultimate "first principles" tool is the statement of cash flows.

(As I tell anyone that cares to listen, P&Ls and Balance Sheets can be tortured to tell many desired fibs, but Cash Flow Statements always tell the truth.)

For a great many investors, looking at the level of distribution yield is as far as they go when it comes to assessing an income-style investment such as REITs, without actually really understanding the underlying determinants of of distributions/dividends.

But the trouble with many REITs is that distributions in recent years have been organically underfunded, having been subsidised by increasing borrowings.

Those increased borrowings, in turn, being supported by higher property valuations which - thanks to the marvel of "cap rate" alchemy - have been rising at annual rates which are several multiples higher than the rates of increase of the Revenues being generated by those properties.

Clearly, that sort of magic pudding has a finite "Use By" date.

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