March 7 2017
REIT Net Asset Value (NAV) is calculated by dividing its operating profit by an attributable capitalisation rate (cap rate). A higher (or lower) applied cap rate results in a lower (or higher) estimated NAV for a given level of operating profit.
The computation of an applicable cap rate is part science and part art. However, this should not detract from the ultimate objective of NAV calculations – being the derivation of the price an asset should fetch in the market.
REITs in particular have traditionally traded at either discounts or premiums to NAV depending on expectations of the future direction of underlying property prices.
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