A client holds units in a Canadian REIT that specializes in industrial properties. The REIT reports an AFFO (Adjusted Funds From Operations) per unit of $1.20 and currently trades at $20.00 per unit. If the comparable REITs in the industrial sector are trading at an average AFFO multiple of 18x, how does this REIT's valuation compare?

Question: A client holds units in a Canadian REIT that specializes in industrial properties. The REIT reports an AFFO (Adjusted Funds From Operations) per unit of $1.20 and currently trades at $20.00 per unit. If the comparable REITs in the industrial sector are trading at an average AFFO multiple of 18x, how does this REIT's valuation compare?

Answer options: ✅ The REIT is undervalued compared to its peers.

• The REIT is overvalued compared to its peers.
• The REIT is fairly valued compared to its peers.
• AFFO multiple is not a suitable metric for comparison in this case.

Correct answer: The REIT is undervalued compared to its peers.

Explanation: The REIT is trading at a multiple of $20.00 / $1.20 = 16.67x AFFO. Since the peer average is 18x, this REIT is trading at a lower multiple, suggesting it is undervalued relative to its industrial property REIT peers.