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101 Concepts for the Level I Exam

Essential Concept 84: Net Asset Value Approach – REITs

Net asset value per share (NAVPS) is the difference between a REIT’s assets and its liabilities (all taken at current market values rather than accounting book values), divided by the number of shares outstanding.

NAVPS = (Value of assets – Value of liabilities) / number of shares outstanding

The actual share price can be different from NAVPS. Shares can trade either at a discount or a premium to NAVPS. NAVPS is the largest component of the intrinsic value of the stock.

NAVPS calculation

The current market value of real estate assets is calculated by capitalizing NOI. The market values of other assets and liabilities are assumed to be equal to their book values.

The following table provides an example of NAVPS calculation.  It starts with the net operating income (NOI) of a property and shows the various adjustments which need to be made.


Office Equity REIT Inc.    Net Asset Value Per Share Estimate

(In Thousands, Except Per Share Data)

Last 12-months real estate NOI $270,432
Less: Non-cash rents 7,667
Plus: Adjustment for full impact of acquisitions (1) 4,534
Pro forma cash NOI for last 12 months $267,299
Plus: Next 12 months growth in NOI (2) $4,009
Estimated next 12 months cash NOI $271,308
Assumed cap rate (3) 7.00%
Estimated value of operating real estate $3,875,829
Plus: Cash and equivalents $65,554
Plus: Land held for future development 34,566
Plus: Accounts receivable 45,667
Plus: Prepaid/Other assets (4) 23,456
Estimated gross asset value $4,045,072
Less: Total debt $1,010,988
Less: Other liabilities 119,886
Net asset value $2,914,198
Shares outstanding 55,689
(1) 50 percent of the expected return on acquisitions was made in the middle of 2010.

(2) Growth is estimated at 1.5 percent.

(3) Cap rate is based on recent comparable transactions in the property market.

(4) This figure does not include intangible assets.


NAVPS is calculated to be $2,914,198 divided by 55,689 shares, which equals $52.33 per share.

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