REIT NAV Models 101: How to Set Them Up, and What Makes Them Tricky

[@pv0315]

You are the Best !!!! God bless You Bro.

[@financialmodeling]

Thanks for watching!

[@mhongorzul9151]

I want to try REIT in our city .. but i dont know how i can start 🤦🏻‍♀️🤷🏻‍♀️

[@priyankpatelsmathssolution1743]

I am trying to value DEI, but i dont have the NOI for regions in investor relations or annual report. Any other way to find those?

[@financialmodeling]

You might be able to find estimates in equity research if you have access. Otherwise, you'll probably have to use Operating Income in the filings and see if you can adjust for corporate overhead to get to NOI and use that. Honestly, though, if a REIT does not disclose NOI by region, you're almost better off valuing it with a DCF and simple multiples rather than a NAV model.

[@priyankpatelsmathssolution1743]

Hey, Thanks!! That was helpful. Any way of contacting you, for professiional purposes?@@financialmodeling

[@PiuPatel-z7j]

Any way to collect NAV discount/premium for different countries?

[@financialmodeling]

There's no free source I know of with this information. You would probably need access to Capital IQ, FactSet, or one of Green Street's services (a REIT valuation and research specialist).

[@priyankpatelsmathssolution1743]

Hey, How do you account for JVs?

[@financialmodeling]

In short, you have to separate out the JV assets, value them based on a forward Cap Rate separately, and then subtract their associated liabilities... and then add the JV NAV to the REIT's overall NAV by multiplying by the REIT's ownership percentage in the JV.

[@yoelherman1951]

Hi, in the DLR NAV model, why are you adding back the Straight-Lining of Rent & subtracting the Below-Market Rent Amortization? aren't those figures suppose to help us in getting the appropriate NOI for the company's assets?

[@financialmodeling]

Those items could go either way depending on the signs. Straight-lining of rent & expenses may have a positive or negative impact depending on the properties. You are attempting to find the Cash NOI, not the GAAP NOI, so these adjustments go in both directions.

[@Joseph-wg5qb]

Great video, but don’t you need to annualized the quarterly NOI? Ie. multiply by 4 and then calculate the NAV?

[@Joseph-wg5qb]

Never mind, I just realized that’s exactly what you did!

[@jingrongchu6324]

Hi, I have learned a lot from your channel, thank you. I have always wanted to try the data myself, so my small question is what source do you always use to get the financials of all the Companies? Thanks again

[@financialmodeling]

Google "Company Name" + "investor relations"

[@robp8494]

Why historical book value of real estate "net of acc. depcn"? I thought that depreciation should be added back because properties tend to appreciate over time.

[@financialmodeling]

Under IFRS, REITs do not record Depreciation on Properties and instead mark the Properties to Fair Market Value each year with a Fair Value Gain or Loss on the Income Statement. But under U.S. GAAP, REITs do not do this but instead record Properties at historical cost and Depreciate them over long periods, such as 30-40 years. But it's just the accounting treatment and doesn't represent the market value of those properties, which is the whole point of a NAV model where you adjust for this.

[@34hqtu89o9]

Why would you mark debt to market value? The underlying debt obligations of the properties in the portfolio do not change irrespective of market valuation. E.g. if I’ve got a $100mm building with $60mm of debt principal and a 5% fixed interest rate 15 year amortization and 5 year maturity, none of that changes if interest rates change and the market value of the debt changes if it is sold. Why do we care about trading value at all, rather than just the cash flow impact of the debt itself?

[@financialmodeling]

In any type of Balance Sheet-based valuation (NAV model, liquidation valuation, etc.), the standard practice is to mark all assets and liabilities to market value because you're effectively assuming that the assets are sold to repay the liabilities. You're correct that the market value of debt does not affect how much is actually owed upon repayment or how much in interest the company is paying, but people still mark it to market value in NAV models for REITs for some reason. It would probably be more accurate to do this in a restructuring/bankruptcy setting, but even there, the market value doesn't affect how much the company owes upon maturity.

[@34hqtu89o9]

Thank you for responding, really like your videos and BIWS got me into finance. So in practice, would someone at a secondaries fund focused on discount to NAV care about the marked to market debt, or would they simply be looking at FMV of the portfolio less book value of existent debt?

[@financialmodeling]

@@34hqtu89o9 I don't know, sorry, as we don't currently cover secondary fund modeling or analysis.