How a Quarter Works
Each quarter runs automatically when you press Advance Quarter. The sequence is:
- Random events roll (tenant bankruptcies, market shocks, etc.)
- Market conditions update (interest rates, cap rates)
- Property values are recalculated from cap rates
- P&L is calculated: GPR → Vacancy Loss → NOI → Interest → G&A → Net Income → FFO → AFFO
- Balance sheet updates with real cash flows
- Ratios calculated and credit rating updated
- Board evaluates your performance and adds/removes pressure
- Earnings report generated
Board Pressure
The board tracks 8 metrics. Each quarter you breach a threshold adds pressure points. Hit the maximum and you're fired. Doing well on metrics removes pressure. The maximum pressure allowed drops each year — survival gets harder.
Year 1 — Orientation
No firing possible in Year 1, but the board scores you silently. At year end they issue an assessment and carry any failures forward as starting pressure in Year 2. A bad Year 1 puts you immediately in danger.
Market Cycles
The economy moves through Expanding → Stable → Contracting → Recession phases. Each phase shifts interest rates and cap rates differently. Rising cap rates = falling property values even if your NOI stays the same.
Credit Rating
Your rating (AAA to CCC) is calculated from debt/assets and interest coverage. It only moves one notch per quarter — you can't fix a bad balance sheet overnight. Your borrowing rate = base rate + credit spread. CCC rating means a 6% spread on top of whatever the base rate is.
NOINet Operating Income — rental revenue minus operating expenses. Does not include interest, G&A, or depreciation.
GPRGross Potential Rent — what you'd collect if every property was 100% occupied.
Cap RateCapitalization Rate — NOI divided by property value. Rising cap rates compress values; falling cap rates inflate them.
TrancheOne individual debt issuance with its own amount, interest rate, and maturity date. You can have up to 10 tranches.
MaturityWhen a debt tranche comes due and must be repaid or refinanced. Clustering maturities creates refinancing risk.
SpreadThe extra interest you pay above the base rate, based on your credit rating. BBB = +1.6%, CCC = +6.0%.
LTVLoan-to-Value — same as debt/assets in this game. Standard real estate leverage measure.
OccupancyPercentage of leasable space that is currently leased and paying rent. 100% is impossible to sustain; 90%+ is healthy.
G&AGeneral & Administrative expense — head office costs. Grows with portfolio size.
DepreciationNon-cash accounting charge that reduces net income but not cash flow. This is why net income is misleading for REITs.
FFOFunds From Operations — adds depreciation back to net income to show true cash earnings.
AFFOAdjusted FFO — subtracts normalized maintenance capex from FFO for a more conservative cash flow view.
Why REITs Use FFO, Not Net Income
Depreciation is a massive non-cash charge. A building might depreciate $5M on paper this quarter while actually appreciating in value. Net income subtracts this, making it look terrible. FFO adds it back to show actual cash generation. This is directly tested in CFA Level 1 and 2.
Cap Rate Mathematics
Property Value = NOI ÷ Cap Rate. If your property generates $5M NOI and the market cap rate is 5%, it's worth $100M. If the Fed hikes rates and cap rates rise to 6%, that same property is now worth only $83M — a $17M loss with no change in your tenants or income. This is the core valuation risk in REIT investing.
The Dividend Commitment
REITs must distribute 90% of taxable income as dividends by law. This means they cannot retain earnings to fund growth — they must constantly access capital markets (debt or equity) to acquire properties. This is why leverage and capital markets access are existential for REITs, not optional tools.
The Credit Spread Cycle
More debt → higher debt/assets → lower credit rating → wider spread → higher interest cost → lower coverage ratio → lower credit rating → wider spread... This is the leverage spiral that destroys REITs in downturns. Maintaining investment grade (BBB or above) is critical because many institutional investors cannot hold sub-investment grade debt.
NAV Premium vs Discount
If your share price is above NAV per share, you trade at a premium — issuing equity raises cash above asset value, which is accretive. If you trade at a discount to NAV, issuing equity destroys value. This dynamic drives REIT capital allocation decisions and is a CFA Level 2 topic.
Dividend Signaling
In this game, cutting the dividend immediately drops your share price significantly. This mirrors real markets — a dividend cut signals management distress and loss of confidence in cash flows. The share price reaction is often larger than the mathematical impact of the cut itself, because it changes investor expectations.
