US Listed REITs Trading at 4.2% Median Discount to NAVs as of September 29
October 2, 2017 | James Sprow | Blue Vault
SNL analyzes publicly traded U.S. equity real estate investment trusts with market caps greater than $200 million and compares their stock prices to the analysts’ consensus estimates of net asset value per share (NAV). Within each property sector, the stock prices are compared to NAVs and the median percentage premium (stock price is higher than consensus NAV) or discount (stock price is lower than consensus NAV) is reported.
As of September 29, 2017, the sector with the highest median premium to NAV was Data Centers with a premium of 8.5%, followed by Self-Storage at 6.9% and Healthcare at 6.3%. These valuation estimates can be indicative of the values of nontraded REITs in those sectors and the potential for capital gains should nontraded REITs focused on a particular sector experience a full-cycle event such as a listing on a national exchange.
The median discount for all listed US REITs was 4.2% at September 29, indicating the REIT sector as a whole was trading below the estimated NAVs. The steepest discounts were in the Regional Mall sector where the median discount to NAV was a huge 38.7%. Shopping Center REITs were trading at a median discount of 16.7% and Office REITs at 9.0%. Of the 10 traded REITs trading at the greatest discounts to NAV, the four greatest discounts belonged to four regional mall REITs, possibly reflecting the impact on anchor retailers and the spill-over effects within malls of the Amazon effect on retailing generally and major retailers such as Sears and J.C. Penney specifically.
For example, Simon Property Group, a listed REIT with 399 properties, lists 69 Sears, Roebuck and Co. tenants and 69 J.C. Penney tenants, with over 11 million total square feet occupied by each brand. With the downturn in the prospects of these anchor retailers, regional malls anchored by them have suffered a drop in values, as have the companies that own them.
I have been using Blue Vault Partners for the past five years. I have found them to be a valuable, unbiased resource when it comes to evaluating and comparing non-traded REITs. The reports help me analyze which sponsors are doing a responsible job of managing their offerings. This allows me to limit my REIT recommendations to only the most competitive products, and then track those REITs throughout their life cycle.