REIT’s Trading near NTA Value

Charlie recently wrote about the dangers to equities from rising local bond yields. Alongside SYD and TCL he mentioned REITs as a bond-like equity which might be at risk.

My question relates to those REITs which are currently trading at near their NTA value. In the absence of rising bond yields also driving a devaluation of commercial property, would the underlying value of their assets be a protective factor for any REITs trading at around their underlying value? Would this mitigate their fall compared to an enterprise like TCL or SYD?

 

A: Thanks for the question.

Being at or close to their NTA will help, as will lower gearing. However, the NTA is largely a function of the capitalisation rate. This is a market determined rate – but a rate which over time is positively correlated to the bond rate. So, higher bond rates normally translate into higher capitalisation rates.

The questions I would be asking about the REIT are:

  1. When were the properties last valued?;
  2. What were the cap rates used?; and

Since the valuation, what has happened to the leasing profile/rents received?


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