eREIT Net Asset Value (NAV)

Term of the week

What: Net asset value (NAV) is a measure of the intrinsic value of eREITs’ property portfolios. It can be expressed as total or per-share value.

Why: When eREITs’ market capitalization exceeds (or is below) their NAV, they are trading at a premium (or discount) to intrinsic value.

How: The intrinsic value of real estate assets is calculated by capitalizing the net operating income they generate. NAV is the intrinsic value of real estate assets reduced by the associated mortgage liabilities.

Conclusion: eREITs can use NAV to determine when it is advantageous to issue additional shares rather than debt to finance growth.