Applying the analysis. As management considers new projects, it must be certain to choose projects that have an expected return, measured by the cap rate, which is greater than its cost of capital. In this context, the cost of capital is the expected return required by the holders of the debt and the equity. If buildings are required that have an expected return less than the company's cost of capital, the returns to the stakeholders will suffer. New capital will be cut off as investors turn to REITs with better returns. As important as cap rate is, it is important to understand its limitations. First of all, cap rate is ideal for individual assets. Secondly, to calculate a cap rate, we have to have an estimated value of the building. If we are buying a new building, this is the selling price. If we are valuing our existing buildings, it becomes more complicated and we need to use a comparable building value or a comparable building cap rate. Lastly, cap rate represents a very near-term valuation as it only factors in the operating income of the next year. On the other hand, AFFO or FFO yield is often thought of as a proxy cost to issue a new share. Now, this stresses the importance of a rising share price to a REIT. However, a REIT with an inflated share price can have an artificially low yield and that can mislead management into thinking that its cost of equity is actually lower than it is. Also, remember that AFFO and FFO as presented are not always consistent between companies. We wanna make sure that we're doing these calculations consistently on our own.