The estimated £4.3 billion in new equity that has been pumped into the UK listed property sector via rights issues and share placings in the past 10 months appears to be having a strong stabilizing influence on the market, new Net Asset Value (NAV) research data from the Brussels -based European Public Real Estate Association (EPRA) indicates.
The average discount of share prices for companies in the FTSE EPRA/NAREIT UK Index to their NAVs, or value of underlying assets, was a record 46% at the market’s lowest point in March, but moved to a 4% premium – significantly above the 20-year average, as stock prices have soared, the latest data for August shows.
EPRA Chief Executive Philip Charls told journalists at the association’s annual conference last week: “The success of UK property companies in raising capital to bolster their balance sheets in the face of falling asset values and extremely tight credit conditions is a tribute to the reputation of these firms in the eyes of investors. We now appear to be moving away from restructuring towards companies positioning themselves to take advantage of investment opportunities as the market recovers.”
Published NAV data for companies in the FTSE EPRA/NAREIT Europe Index has been distributed by EPRA to association members on a monthly basis since June 2009, but an historical data record is available from 1989.
While UK property stocks have leaped over 90% over the last six months, since the market’s floor, continental European real estate securities prices and discounts to NAV have shown less extreme movements. The average NAV discount of the FTSE EPRA/NAREIT Europe Ex UK Index was 20% at the end of August compared with 45% in March, and the index has risen about 70% since its March 09, 2009 bottom.
Net Asset Value is an extremely important metric in the valuation of listed real estate securities and EPRA has created a common standard for expressing NAV, to allow the transparent comparison of companies in the sector. This addresses gaps in the International Financial Reporting Standards (IFRS) fair value model for NAV.
The EPRA triple net NAV (NNNAV) represents the fair value of equity. The metric includes fair value adjustments of all material balance sheet items, which are not reported at their fair value as part of the NAV per IFRS balance sheet statement. Deferred taxes are included at fair value.
Companies representing over 60% of the EUR 70 billion free-float market capitalization of the FTSE EPRA/NAREIT Europe Index, including the majority of the largest stocks, are already reporting the benchmark EPRA NAV.
EPRA Research Director Fraser Hughes said: “The EPRA NAV data is already giving analysts and companies new insights into the European listed real estate sector. We would urge companies who are not already doing so, to start reporting using the EPRA NAV, so they, and the market, can truly compare their performance with their peers.”
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