Do REITs have a NAV?

Do REITs have a NAV?

Net Asset Value Calculation Many REIT analysts look at net asset value (NAV) as a reference point for the valuation of a company. NAV equals the estimated market value of a REIT’s total assets (mostly real property) minus the value of all liabilities.

Why do REITs trade below NAV?

According to the noise theory, fluctuations in departures from NAV are caused by changes in investor sentiment. That is, when investors become (irrationally) pessimistic about REITs, the value of REIT shares is pushed below their true, underlying value.

What is the best way to value a REIT?

REIT Valuation using NAV (7 Step Process)

1. Step 1: Value the FMV (fair market value) of the NOI-generating real estate assets.
2. Step 2: Adjust NOI down to reflect ongoing “maintenance” required capex.
3. Step 3: Value the FMV of income that isn’t included in NOI.
4. Step 4: Adjust the value down to reflect corporate overhead.

Is NAV the same as book value?

Book value per common share, also known as book value per equity of share or BVPS, is used to evaluate the stock price of an individual company, whereas net asset value, or NAV, is used as a measure for evaluating all of the equity holdings in a mutual fund or exchange traded fund (ETF).

Do REITs trade at a discount to NAV?

Publicly traded U.S. equity REITs traded at a median 4.2% discount to their consensus S&P Global Market Intelligence net asset value per-share estimates as of Feb. The data center sector traded at the largest premium to NAV, at a median of 20.3%.

What is NAV price?

NAV is the price at which the shares/units of the funds registered with the U.S. Securities and Exchange Commission (SEC) are traded (invested or redeemed). 1 Net asset value is commonly used to identify potential investment opportunities within mutual funds, ETFs or indexes.

What drives price of REITs?

Interest Rates. During periods of economic growth, REIT prices tend to rise along with interest rates. The reason is that a growing economy increases the value of REITs because the value of their underlying real estate assets increases.

What valuation metrics are most important when estimating value for a REIT?

The most important valuation metrics for REIT investors to use

• Price-to-FFO. You can read a thorough discussion here, but the short version is that net income and earnings per share don’t translate well to REITs.
• Adjusted, normalized, or core FFO.
• Debt-to-EBITDA.
• Credit rating.
• Payout ratio.

How do you find the FFO of a REIT?

FFO is calculated by adding depreciation, amortization, and losses on sales of assets to earnings and then subtracting any gains on sales of assets and any interest income. It is sometimes quoted on a per-share basis.

Is higher NAV better or lower?

Simply put, the NAV represents the fund’s intrinsic worth. Financial advisors believe a higher or lower NAV is irrelevant to investors. For example, suppose you are investing in two schemes with same portfolios. One scheme has been around for a while, so it has a higher NAV.

What do REITs have the incentive to do if its stock price exceeds its NAV by a significant amount?

REIT managers increase acquisitions and reduce dispositions when share prices exceed the implied value of equity claims based on NAV. REITs appear to pay significant premiums relative to other investors for retail, office, and multifamily assets.