Financing
Definition
Unlevered yield measures the return on an investment without considering any debt, reflecting the property’s performance based solely on its income.
Unlevered yield is a fundamental financial metric in industrial real estate investment that measures the return generated by a property solely based on its net operating income (NOI), without accounting for any debt financing or leverage. This metric reflects the pure performance of the asset, independent of the capital structure used to acquire it. Calculated as the NOI divided by the property’s current market value or acquisition price, the unlevered yield provides investors and asset managers with a clear view of the intrinsic profitability of the real estate asset itself. Unlike levered yield, which incorporates the effects of debt service and interest costs, unlevered yield isolates the operating efficiency, rental income stability, and market valuation aspects. It is particularly useful for comparing investment opportunities on an apples-to-apples basis, benchmarking property performance over time, and conducting sensitivity analyses without the distortions introduced by varying financing structures. In the context of industrial real estate, where tenant credit quality, lease terms, and operational costs significantly influence cash flow, unlevered yield helps investors assess risk-adjusted returns and informs strategic decisions regarding acquisitions, dispositions, and portfolio optimization.
Practical Example: IPEC Group
At IPEC Group, unlevered yield plays a critical role during the initial evaluation and acquisition phases of our industrial logistics projects across Slovakia and the CEE region. Before integrating financing options, our analysts calculate the unlevered yield by dividing the projected net operating income from long-term leases by the estimated market value of the industrial facility. This approach allows us to objectively compare properties on a consistent basis, focusing purely on their operational performance regardless of the available financing terms. For example, in our recent development in the Bratislava Logistics Park, the unlevered yield guided our investment committee by highlighting the asset’s stable income potential before applying leverage, ensuring that the core business fundamentals of the facility met our stringent profitability and risk thresholds.
Related Terms
Levered Yield, Net Operating Income (NOI), Cash-on-Cash Return, Internal Rate of Return (IRR), Debt Service Coverage Ratio (DSCR)