What is NAV in REIT analysis?

NAV (Net Asset Value) estimates the market value of a REIT's property portfolio less its liabilities, expressed per share. It shows whether the stock trades above or below the private-market worth of the buildings. It is not an objective number: almost all of it comes from the cap rates you assume, so two analysts valuing the same portfolio will usually disagree, and the disagreement is nearly always about cap rates.

How do you calculate REIT NAV per share?

Capitalise stabilised NOI at the appropriate cap rate for each property segment, add development at value on completion less costs to come less a risk discount, add your share of joint ventures net of the JV's own debt, add land and non-core assets, then subtract net debt and preferred equity and divide by diluted shares. Value any non-property earnings, such as third-party management fees, on an earnings multiple rather than a cap rate. The cap rate is the most sensitive input by a wide margin.

What does it mean when a REIT trades at a discount to NAV?

It means the market disagrees with your valuation. Work out which cap rate would close the gap: add the net debt back to the market capitalisation, strip out development and other non-stabilised assets, and divide NOI by what is left. Usually the discount resolves into a few tens of basis points of cap rate. Only once you have decided your rate is the better one is a discount an opportunity, and it can equally reflect capital the buildings will need, refinancing risk, or management the market does not trust.

How much does a cap rate error change NAV?

More than most people expect, because leverage amplifies it. A 50 basis point error moves gross property values by roughly 8%, but debt does not move with cap rates, so the whole error lands on the equity. The rule is: NAV move equals asset value move divided by (1 minus loan-to-value). At 40% loan-to-value an 8% asset move is a 13% NAV move; at 60% it is nearly 20%.

How to Calculate NAV for a REIT: Step-by-Step

Educational analysis for professional use. This guide is not investment advice or a recommendation to buy or sell any security, and it is not personalised.

NAV Is a View, Not a Measurement

A REIT’s net asset value is what its buildings would fetch at today’s market values, less what it owes, divided by the shares in issue. Where a P/FFO multiple prices the REIT against its peers, NAV prices it against the property.

That sounds harder-edged than it is. Almost every dollar of a NAV comes from a judgement you made, and the largest of them by far is the capitalisation rate: the yield you use to turn one year of rent into a building value. Two analysts handed the same portfolio will usually reach different NAVs, and the disagreement is nearly always about cap rates rather than about the property. So read a NAV as a view with a number attached. The useful skill is knowing which assumption is carrying it, which is why the sensitivity work at the end of this guide matters more than the build itself.

NAV is also not a liquidation value, though it is often described as one. It ignores the agent fees, transfer taxes and time a real sale would take, and it quietly assumes the whole portfolio could be sold at once without moving the market it is being priced against.

The most common method is direct capitalisation, which values each property (or portfolio segment) by dividing net operating income by an appropriate cap rate.

The Direct Capitalisation Method: Core Framework

Net operating income (NOI) is the rent left after the cost of running the building, so property taxes, insurance, maintenance and site staff, and before interest, tax and anything spent on the fabric of the building itself.

The direct capitalisation method assumes each property generates a stabilised annual NOI, and you divide by a cap rate to estimate market value:

Property Value = Annual NOI / Cap Rate

For a REIT with dozens or hundreds of properties, you typically group them by property type and geographic market, apply a market cap rate to each, and sum the values.

Step 1: Determine Stabilised NOI by Property Type and Market

Start with the REIT’s reported NOI, usually disclosed by property type and sometimes by geography. Stabilised NOI is the sustainable, recurring income after accounting for normal occupancy and operating expense ratios.

Here’s a worked example for “Portfolio REIT Corp.”:

Property Portfolio by Type (as of year-end):

Property Type	Gross Rental Income	Operating Expenses	NOI
Industrial	$245M	$65M	$180M
Office	$180M	$72M	$108M
Retail	$95M	$38M	$57M
Residential	$120M	$48M	$72M
Total	$640M	$223M	$417M

These are annual figures based on stabilised leasing and normal operating conditions.

Step 2: Select Appropriate Cap Rates by Property Type and Market

Cap rates vary significantly by property type and geography. For a detailed reference with current market ranges and historical context, see our cap rates by property type guide. As of early 2026, here are representative ranges:

Property Type	Prime Markets	Secondary Markets	Notes
Industrial	4.8–5.5%	5.5–6.5%	Reflects strong e-commerce demand; younger portfolio
Office	5.5–6.5%	7.0–8.5%	Higher rates due to WFH uncertainty; older stock
Retail	5.0–6.0%	6.5–7.5%	Varies by sub-type (lifestyle vs. necessity)
Residential	4.8–5.5%	5.5–6.8%	Very location dependent

Blend each segment by the share of NOI sitting in each market tier:

Industrial: 70% prime (4.8%), 30% secondary (6.0%). (0.70 × 4.8%) + (0.30 × 6.0%) = 5.16%
Office: 40% prime (6.2%), 60% secondary (7.5%). (0.40 × 6.2%) + (0.60 × 7.5%) = 6.98%
Retail: 60% prime (5.5%), 40% secondary (7.0%). 6.10%
Residential: 50% prime (5.0%), 50% secondary (6.5%). 5.75%

Step 3: Capitalise Each Segment

Divide each segment’s NOI by its blended cap rate:

Property Type	NOI	Cap Rate	Value
Industrial	$180M	5.16%	$3,488M
Office	$108M	6.98%	$1,547M
Retail	$57M	6.10%	$934M
Residential	$72M	5.75%	$1,252M
Total Portfolio	$417M	5.77%	$7,221M

The blended portfolio cap rate falls out of the total rather than going into it: $417M / $7,221M = 5.77%. It sits below the simple average of the four segment rates because industrial, the tightest, carries the most income.

Step 4: Adjust for Non-Core Assets, Development Pipeline, and Special Items

Not all value flows from stabilised income, and this is where most NAV builds go wrong. Three items do the damage: development, joint ventures, and anything the REIT earns that is not rent.

Development pipeline. A half-built shed is worth its value on completion, less what is still to be spent, less a discount for the chance it does not let as planned. Portfolio REIT has two schemes running:

Logistics facility, 65% complete. Value on completion $185M, $28M still to spend, so $157M net. A 20% risk discount gives $126M.
Mixed-use residential, earlier stage. Value on completion $110M, $35M still to spend, so $75M net. A 30% discount gives $53M.

Development contribution: $179M. The discount is the whole point. Take the net figure at face value and you have credited the REIT with a letting that has not happened.

Land bank. Portfolio REIT holds 18 acres of vacant land suited to industrial development, worth an estimated $95M once built out. Halve it for the chance it is never developed, and for the decade of waiting: $47.5M.

Non-core assets. Administrative offices (owner-occupied) at ~$12M and equipment and fixtures at $8M, so $20M. These earn no rent, so no cap rate applies; take a sale value.

Joint ventures. Portfolio REIT’s share of assets held in unconsolidated joint ventures is $75M. Count your share of the JV’s property value net of the JV’s own mortgage debt. Adding your share of the buildings and forgetting the borrowing against them is the commonest single error in a NAV build, and on a heavily geared JV it can overstate the whole valuation by several per cent.

Non-property earnings. Portfolio REIT has none, but many REITs do: third-party asset management, development fees, solar or storage businesses. These are operating earnings, not real estate, so they take an earnings multiple rather than a cap rate. Running them through a 5% cap rate values a fee stream at twenty times, which no buyer would pay.

Preferred equity of $50M is a claim ranking ahead of the ordinary shares, so it comes out.

Development and other assets total: $179M + $47.5M + $20M + $75M − $50M = $271.5M

Step 5: Add It Up to Total Asset Value

Component	Value
Stabilised property value	$7,221M
Development pipeline	$179M
Land bank	$47.5M
Non-core real estate and other assets	$20M
Joint venture interests (net of JV debt)	$75M
Less: Preferred equity	($50M)
Total Asset Value	$7,492.5M

REIT NAV bridge waterfall chart building from property segment values (Industrial $3.5B, Office $1.5B, Retail $934M, Residential $1.3B, development and other assets $272M) through net debt deduction ($3.0B) to equity NAV of $4.5B or $18.26 per share

Step 6: Subtract Net Debt to Calculate Equity Value

Equity value equals asset value minus net debt (total debt less cash):

Item	Amount
Total Debt	$3,200M
Less: Cash and cash equivalents	($180M)
Net Debt	$3,020M

Equity Value = $7,492.5M - $3,020M = $4,472.5M

One inconsistency to notice here. You have marked every asset to today’s market and left the debt at the balance-sheet figure. If a REIT is paying 3% on ten-year fixed debt while the market lends at 6%, that borrowing is worth less than its face value to whoever holds it, so marking it to market shrinks the deduction and lifts NAV. The number is disclosed in the fair-value-of-debt footnote. The size is easy to underestimate: a ten-year loan paying 3% is worth about 78 cents on the dollar once the market wants 6%, so on a large book the mark can move NAV per share by more than the cap rate argument does. Whether to take it turns on whether the REIT will hold the debt to maturity or refinance early.

With 245 million shares outstanding:

NAV Per Share = $4,472.5M / 245M shares = $18.26

Interpreting NAV Premium and Discount

Portfolio REIT trades at $16.50 per share. This represents:

Discount to NAV = ($16.50 - $18.26) / $18.26 = -9.6%

The instinct is to call that cheap. Resist it, because a discount is first of all a disagreement, and it is worth working out what the market would have to believe to be right. Back the calculation up: at $16.50 the equity is worth $4,042M, add the $3,020M of net debt and the market is paying about $7,062M for the whole thing. Strip out the $271.5M of development, land and other items and the market is valuing the standing portfolio at roughly $6,791M, which on $417M of NOI is a 6.14% cap rate against your 5.77%.

So the entire discount is 37 basis points of cap rate. That is a small number, well inside the range two reasonable people would argue over, and it reframes the question usefully: instead of asking whether the stock is cheap, ask whether 6.14% or 5.77% is the better read on this portfolio. If the office segment is heading for a re-letting cycle the market has priced and you have not, the market is right and there is no discount at all.

The same arithmetic works in reverse on a premium, and it is a good habit generally. Almost any NAV disagreement, between you and the market or between two analysts, resolves into a cap-rate disagreement once you push it far enough. Cross-check the answer against occupancy trends and same-store NOI growth, and against the other tests in the REIT screening checklist.

NAV Premium/Discount Interpretation:

Premium of 10%+: Market pricing in growth, strong leasing momentum, or superior management. Warrants scrutiny of growth assumptions.
Premium of 0–10%: Market pricing in modest growth or quality premium. Fairly valued.
Discount of 0–10%: Market cautious on sector, property type, or balance sheet. Often reflects genuine concerns; dig deeper.
Discount of 10%+: Significant market scepticism. Sometimes a bargain, more often a dispute about the cap rate, the capital the buildings will need, or the people running them. Find out which before buying it as a discount.

Common Adjustments and Pitfalls

Cap Rate Selection Sensitivity, Amplified by Leverage

This is the one thing on the page worth memorising. A cap rate error hits gross property values, but it lands on NAV, and NAV is the thin slice left after the debt. Debt does not move when cap rates do, so the whole error is absorbed by the equity.

Put 50 basis points on every one of Portfolio REIT’s cap rates and the standing portfolio falls from $7,221M to $6,640M, a drop of 8.0%. Total assets fall 7.8%, to $6,911M. But net debt stays at $3,020M, so equity falls from $4,472M to $3,891M and NAV per share goes from $18.26 to $15.88. That is a 13% hit to NAV from an 8% move in property values.

The mechanism is a single line of arithmetic. Portfolio REIT’s net debt is 40% of its assets, so:

NAV move = asset value move ÷ (1 − loan-to-value) = 7.8% ÷ 0.60 = 13.0%

Which means the amplifier is a property of the balance sheet, not of the cap rate. The same 50 bps costs a REIT with no debt 8%, one at 40% loan-to-value 13%, and one at 60% loan-to-value nearly 20%. Two REITs owning identical buildings can have wildly different NAV sensitivity, and the geared one is the one where your cap rate assumption needs to be right.

A single segment moves less, because it is a smaller share of the whole. If industrial alone re-rates from 5.16% to 5.66%, its value falls from $3,488M to $3,180M, a $308M hit, or $1.26 per share: about 7% of NAV rather than 13%.

Always run the portfolio at plus and minus 50 bps and quote the range rather than the point. Stress-test the rates themselves against comparable transactions and broker surveys, and see our industrial vs office REITs comparison for why the cap-rate gap between property types is fundamental rather than a mispricing to arbitrage.

Occupancy and Rent Normalisation

Your NOI should reflect normal, not peak, occupancy. If a REIT has 94% occupancy but the market average is 88%, “normalise” down. Similarly, if rents are in the midst of a steep rental growth cycle, use stabilised rents, not trailing actuals.

Development and Redevelopment Risk

It’s easy to assign full value to a 50% completed development. Apply a risk discount. A project 80% complete with strong pre-leasing might warrant a 10–15% discount; early-stage development, 25–50%.

Debt-Like Instruments

Preferred equity, convertible instruments and JV guarantees are claims that rank ahead of the ordinary shares even when they do not appear in the debt line. Deduct them, and check the JV footnotes for debt the REIT has guaranteed but not consolidated.

Land Bank Discounting

Vacant land has value, but not full “ready-to-develop” value. Discount for the time, cost, and probability of development. A 10-year land bank might be worth only 30–50% of its future development value.

Where NAV Breaks Down

Everything above rests on cap rates you chose, and cap rates are market prices that move continuously. Fifty basis points across the portfolio is 13% of Portfolio REIT’s NAV once leverage has had its say, which is larger than most of the mispricings anyone is hunting for. So the output of a NAV build is a range with the cap rate named, not a figure to two decimal places.

NAV is also a snapshot rather than a forecast. It says what the portfolio is worth against today’s yields and today’s rents, and says nothing about the next lease maturity cycle, the capital those buildings will need, or whether management will reinvest the proceeds well. Pair it with FFO and AFFO analysis so you have the cash-flow view beside the asset view. When the two disagree, that gap is the research question.