A lower capitalization rate implies a lower FFO, why?

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dududu100

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An example 10 in the CFA Volume 5 page 124, question A’s answer states that “a lower capitalization rate (i.e. a lower NOI with such other parameters as interest costs and corporate expenses being the same) implies a lower FFO and hence a higher P/FFO ratio if P/NAV ratios are similar, as is the case here.”

Why capitalization rate has something to do with FFO? I thought we use the cap rate to calculate the “value of operating real estate”. Can someone help explain/

Thanks!
 
Thanks for pointing that out! The value is constant. However, I thought the FFO is related to the Net Income. The capitalization rate is used to calculate the value from the NOI. How does the capitalization rate affect the FFO? I just dont see the connection, do you mind explaining a little more on this? Thanks!
 
Possibly because a lower FFO estimate is more “conservative” and therefore less risky?
 
I found the answer to this. Just in case someone has the same question”
Capitalization rate is like an multiplier for property value to get Net Operating Income:
(net operating income) = (property value) x (cap rate)
So the smaller the cap rate, the less the NOI will be per $1 of property value. FFO begins with NOI.”
Cheers
 
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