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AdvancedBrazilian REITs · Lesson A1.3 · Module A1

Fair value: cap rate, replacement cost and cash flow

Module A1: Interest, price and value

12 slides~5 minquiz at the end

In this lesson

  • Cap rate, replacement cost and DCF
  • One warehouse through all three yardsticks
  • Why to publish a range, not a point
See the slides
Building under construction with a crane

Brazilian REITs · Lesson A1.3

What is a share worth? Depends on the yardstick

Three methods, three answers, and what to do when they clash.

Gaf.arq · Wikimedia Commons · CC BY-SA 3.0

The three yardsticks

Three ways to measure value

  • Cap rateyearly net income ÷ property value
  • Replacement costland + building it again, today
  • Discounted cash flowfuture income brought to today
  • Different assumptionswhich is why the numbers don't match

Yardstick 1 · cap rate

Same income, two values

R$ 12 mnnet income/year÷9%cap rate=R$ 133.3 mn
R$ 12 mn÷10%cap rate=R$ 120 mn−10%

One cap rate point moves value by 10%. Whoever picks the cap rate picks the result.

Yardstick 2 · replacement

What it costs to build again

50,000 m²×R$ 3,000per m²=R$ 150 mnconstruction
R$ 150 mn+R$ 40 mnland=R$ 190 mn

Illustrative numbers for a warehouse.

Cheap or stranded?

The market pays less than the bricks

63%

R$ 120 mn market value ÷ R$ 190 mn to rebuild

A value argument that only holds if someone wants to rent that warehouse.

Yardsticks side by side

Same warehouse, values up to 58% apart

  1. 120cap 10%
  2. 133cap 9%
  3. 190replacement
market R$ 120 mn

In R$ millions. From 120 to 190 is a 58% gap.

What the site's backtest measured

No method beat today's price

14.5%

error of “it's worth today's price”; discounted cash flow missed by 30.4%

7 funds in the Rico aos Poucos lab, measured on September 8, 2026.

The misconception

Cents or a range?

“Worth R$ 132.47”

false precision

  • Hides the assumption
  • Looks certain, is a guess

“Between R$ 120 and 190 mn”

honest range

  • Shows where methods disagree
  • The assumption stays visible

On the site, when methods diverge by more than 40%, the page shows the range.

Remember this

Three ideas from this lesson

  1. Three yardsticksCap rate, replacement cost and discounted cash flow measure different things.
  2. Assumptions ruleOne cap rate point already moves value by 10%.
  3. A range, not centsWhen methods clash, the honest answer is the interval.

Quick quiz · 1 of 2

Why does the site show a fair value range instead of a number?

See answer

Measured disagreement. With over 40% dispersion and real backtest error, a figure down to the cent would be false precision.

Quick quiz · 2 of 2

Net income of R$ 12 mn a year and an 8% cap rate. What is the property worth?

See answer

R$ 12 mn ÷ 8% = R$ 150 mn. Lower cap rate, higher value.

Lesson complete

Next lesson

A2.1Advanced · Lesson A2.1Simple and qualified quorum in practiceHow many votes each decision needs, and why a majority sometimes isn't enough.Continue
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Image credits
  • Gaf.arq · Wikimedia Commons · CC BY-SA 3.0 — Wikimedia Commons
  • Christina Morillo · Pexels · Pexels License — Pexels

Educational content, written for learners. Not investment advice.