So, the times of property shares trading at discounts have returned. And how!
Looking at the discounts Reita calculates for the EPRA UK Index, the current discounts are unprecedented. For Jan 2009, the discount (share price to NAV) is -59,2%. In other words: you’re paying 40 p to the pound.
When the value of a company’s shares is greater than their [net] assets, the shares are trading at a premium. When the shares are worth less than the assets, the shares trade at a discount (shown as a negative percentage on the chart).
So in essence, to investors this ‘mispricing’ offers opportunities. As long as the quality of the underlying assets is good, the cash flow is sufficient and debt is secured, this opens possibilities. However, investors should bear in mind the fact that the value of the underlying asset may have undergone a ‘shift in value’ due to market circumstances. So, a proper valuation to determine the true value of the ‘sum of parts’ is key before buying into these shares at ‘premiums’.
Oh, and you will have to believe that real estate markets will bounce back and the repricing at current levels is of a temporary kind. As long as you do, it offers a tremendous upside.