NAV no more? Jefferies weighs dropping data from notes
Investment bank Jefferies has considered removing data on a real estate company’s net asset value from its research notes on their stock – chiming with industry executives who think investors’ focus on the metric is too great.
In a note, a team led by equity analyst Mike Prew said the matter had been debated internally since Jefferies’ conference held with the European Real Estate Association earlier this month, given that “marginal buyers” are now looking at a company’s price/earnings ratio more than they are its NAV.
“NAVs are still the REIT lingua franca as UK real estate is mostly leveraged on bank debt and sensitive to LTV covenants, whereas US and [European] REITs make more use of the bond market,” Jefferies said. “We think something is being lost in translation and NAVs don’t appear to be the concrete ceilings on deal making they used to be.”
Investment bank Jefferies has considered removing data on a real estate company’s net asset value from its research notes on their stock – chiming with industry executives who think investors’ focus on the metric is too great.
In a note, a team led by equity analyst Mike Prew said the matter had been debated internally since Jefferies’ conference held with the European Real Estate Association earlier this month, given that “marginal buyers” are now looking at a company’s price/earnings ratio more than they are its NAV.
“NAVs are still the REIT lingua franca as UK real estate is mostly leveraged on bank debt and sensitive to LTV covenants, whereas US and [European] REITs make more use of the bond market,” Jefferies said. “We think something is being lost in translation and NAVs don’t appear to be the concrete ceilings on deal making they used to be.”
The team said it referenced NAVs when “balance sheets corrected” during 2022 and 2023, but has switched back to discounted cash flows to risk-adjust returns and capture forward refinancing.
“A discount to NAV doesn’t mean a REIT is cheap, with Intu shares at a 100% discount when it entered administration in 2020,” the team added.
In a recent interview with EG, Custodian Capital managing director Richard Shepherd-Cross said the UK has an “undue focus” on NAV.
“We should be following the architects of the REIT regime, the US, and be looking at earnings,” Shepherd-Cross added. “Every trading company that anyone has ever invested in, the key metric is earnings. [But when] it comes to real estate, they say, ‘Oh, it’s all about asset value’. But it’s not, because it’s the earnings that come from the rent that support the dividend.”
