Besides the points I advised you to look at earlier when reviewing REITS, you should also watch out for the NET ASSET VALUE of the REIT.

Firstly, what really is Net Asset Value (NAV)?

Net asset value of a REIT is determined by deducting the value of all the fund’s liabilities from the value of all the fund’s assets at the valuation point. In other words, it is the portion of the fund that is owned by the risk takers, namely the REIT’s unit holders. In accounting, we call it Net Shareholder Funds.

As a reference point, let’s look at the balance sheet of a REIT company below:

What happens every now and then is that the REIT’s properties need to be revalued by professional valuers. Any increases or decreases in property prices will directly increase or decrease the net asset value (e.g. for increases in revaluation of properties, the line on properties $ will increase, hence increasing the net asset value for the fund)

Simply, whenever the prices of properties increases and when properties being revalued, the increases in this net asset value will increase the unit holder’s value. However, as you would expect from the stock market, the listed REIT’s market price might not go up hence, there is a potential attractiveness in investing in that particular REIT ( in the long term)

Incidentally, you can sometimes see REIT managers commenting on their fund’s net asset value. A typical example of such a comment has been directly extracted from a Singapore REIT:

“ With the revaluation of assets, the NAV rose 10.5% from $7.72 per Unit as at 31 December 2005to $8.53 per Unit as at 31 December 2006. Compared to the year-end closing price of $5.90 per Unit, XXX REIT is currently trading at a discount of nearly 31%, making XX REIT an attractive investment for long term investors”

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