The prevailing methods for the valuation of REITs focus on the REIT as a business enterprise. The Hoyt REIT Model differs in at least two ways. The first difference is that the Model has a foundation of valuing the real estate portfolio of each REIT. Additionally, the Model integrates the valuation of real estate with a valuation of the enterprise as an on-going business with explicit consideration of capital structure.

The Model by decomposing the cap rates explicitly considers 40 major factors in analyzing the differences in capitalization rates between the real estate segment of the capital market and the securities market. This provides critical information to the valuation and risk analyses. This multidimensional analytic focus allows the Model to distinguish among REITs that are overvalued, appropriately valued, and undervalued by the securities markets. It also allows investors to construct REIT portfolios diversified by risk.

The Model considers the space market characteristics of the properties, capital structure of the REIT, management quality, portfolio strategy, and growth prospects. The space market analysis makes use of millions of dollars of research at top universities sponsored by the Hoyt Group over the course of more than a decade. An internally consistent analytical system has been developed to compare REITs based on their portfolio and operating characteristics. There is also on-going work on peer group analysis.

The Hoyt REIT Universe consists of approximately 80 equity REITs, each with a market capitalization in excess of $150 million. The Model focuses on core property types which are defined as residential, office, industrial, and retail.

The Hoyt REIT Model makes use of an extensive proprietary database developed by the Hoyt Group. The database tracks over 200 variables on each REIT. Additionally, the database contains information on approximately 8,850 properties owned by the REITs in the Universe.

The database is continually updated and refined and the Hoyt REIT Model is periodically enhanced. The database and Model are linked to ensure that all relevant variables are factored into the investment decision-making process. The charts contained on this page graphically represent some of the Model's output.

Investment Analysis Process

Database - The first step in the investment analysis process is the assembly of data into a relational database. The database is updated regularly, with data flowing in on a daily basis. Elements are drawn from seven major types of sources.

• Vendor Data
• Internal Analysis
• Public Documents
• Analyst Reports
• Subscription Services
• Research Services
• Industry Publications

Analysis - The next step in the investment process is the analysis of data. The data flow to the Hoyt REIT Model from the database and are analyzed in five separate analytic processes:

• Valuation in the Space Market
• Cash Flow and Dividends
• Decomposition of Cap Rates
• Decomposition of REIT Value
• Assessment of Market Mispricing - Using Scatterplots

Review - The next stage in the investment process is analyst review of the Hoyt REIT Model output using various sources of data including:

• Vendor Data
• Internal Analysis
• Public Documents
• Analyst Reports

Decision - The final stage in the process is analyst recommendations to the Investment Committee. The Investment Committee, which is comprised of Institute personnel, meets on a monthly basis to review the portfolio.