REIT capital allocation
Funding deals, the dividend, leverage and the investment spread.
By Surojit Chakraverti, founder of L3VLUP and an investor running a long-short healthcare and technology equities strategy.
On this subject: reit capital allocation.Updated 2 October 2026
Part of real estate models, with the models, labs and guides around it.
What it does
A REIT distributes most of what it earns, so growth is funded from outside: new debt and new shares, sold at whatever the market will pay. That makes the share price an input to the forecast. The schedule funds each year’s net investment at a set mix, issues shares at the net price, pays the dividend on the weighted share count, uses what is left to repay debt, and tracks leverage and interest cover. The test that joins it together is the investment spread: an acquisition adds to AFFO per share only if its yield after recurring capital spending is above the cost of the debt and equity raised to pay for it. Issuing shares below NAV dilutes NAV per share even when that test passes.
Where it lives
The same schedule in each model that carries it, with the rows to open. Open a model in the browser, go to the sheet, and click the lines.
- Assumptions, rows 8–11: Share price ($), Shares outstanding at the end of FY0 (m), Dividend per share, FY0 ($), Dividend per share growth a year
- Assumptions, rows 35–39: Debt at the end of FY0 (net of cash), Interest rate on debt, Share of net investment funded with new debt, Cost of issuing new shares, % of gross proceeds…
- Capital, rows 6–10: Net investment: acquisitions less disposal proceeds, New debt, New equity, net of issue costs, Net issue price per share: share price less issue costs…
- Capital, rows 13–15: Shares, opening (m), Shares, closing (m), Weighted average shares: opening plus half the new shares (m)
- Capital, rows 18–19: Dividend per share ($), Dividends paid: DPS x weighted average shares
- Capital, rows 22–26: Cash from operations: FFO plus other depreciation, less straight-line rent, plus share-based pay, Cash from investing: deals, recurring and other capital spending, Cash retained after capital spending and dividends: repays debt, Cash from financing: new debt less repayment, new equity, dividends…
- Capital, rows 29–34: Debt, opening, Interest: rate x (opening debt + half the new debt), Debt, closing, Net debt / EBITDAre…
- Valuation, rows 11–14: Dividend / AFFO: the AFFO payout ratio, Taxable income, approximated by net income less gains, Dividends / taxable income (must be at least the requirement), Distribution requirement
- Valuation, rows 17–21: Cost of new equity: FY1 AFFO per share / net issue price, Cost of the capital raised: debt and equity in the funding mix, AFFO yield on acquisitions: cap rate less recurring capital spending, Investment spread: AFFO yield on acquisitions less the cost of the capital raised…
What a reviewer looks for
- Issuing shares at the market price with no issue costs.
- A dividend paid on year-end shares when the new shares arrived mid-year.
- Calling an acquisition accretive because its cap rate beats the cost of debt alone.
Learn it, then build it
Vocabulary: Real Estate Investment Trust (REIT), Dividend Yield, Leverage Ratio (Debt/EBITDA).