Thanks to Romer for the suggestion! I’m test-driving a new REIT analysis metric called “net asset value per share multiple” (NAVx), which, as the name suggests, tells us how much a REIT is “worth” per share of stock, relative to its current market price.
It takes the market value of the REIT’s assets and subtracts all the liabilities to find the net asset value (NAV), and then divides the NAV by the number of outstanding shares to arrive at the NAV per share, then divides that per-share amount by the stock price. Think of NAV in this context like “book value” per share, except that instead of using the company’s historical cost of the assets to determine the value of the assets, we’re using the company’s most-recent estimate of the current market value of the assets to determine that value.
If a REIT stock is trading above its NAV/Sh, with a NAVx multiple over 1.0, then perhaps the market has a positive outlook for the REIT’s future growth potential (like increasing rents or lowering occupancy), or perhaps the market is willing to pay more for the REIT’s track record of generating good, stable returns. Trading below its NAV/Sh with a NAVx multiple below 1.0 could mean the opposite; the market might be concerned about the REIT’s future growth potential, or it might not have faith in the REIT’s ability to deliver comparably strong returns.
MB BOTTOM-LINE
There is no one King Of All Metrics that can help us find the best REIT investment from our current stable of options. When you buy a share of a REIT, you’re buying a share of the underlying assets of the REIT, and you’re also buying a share of the income stream that is generated by those assets (the dividends). The yield measures the amount of income generated per share, relative to the stock price, and the NAVx measures the value of the assets relative to the stock price, and the REIT’s stock price is sort of like a bottom-line representation of the market’s “valuation” of both of those things.
In the US, commercial REITs tend to trade with a NAVx of between 0.90 and 1.10, so pretty close to the market value of their assets, while REITs that are focused on data centers and cell towers tend to trade in a higher NAVx range of between 1.4 and 1.8. I’m not sure how useful it is to compare our REIT sector, which is basically an infant, with the fully-matured REIT sector of the US, but the metric itself should only become more useful as our REIT sector grows and matures over the coming years.
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