The three EPRA net asset values answer three different questions, and the discount a share trades at depends entirely on which one you pick.
EPRA NTA, NRV and NDV all start from IFRS equity and adjust it in three different directions. NRV adds back deferred tax and purchasers' costs to show what it would cost to rebuild the company; NTA strips out intangibles and adds back only the deferred tax that will never crystallise; NDV marks debt and derivatives to market as if the company were wound up. On an illustrative company with 20.00 of IFRS NAV a share, they are 24.95, 21.50 and 20.80, and a 17.00 share price is a discount of anything from 15.0 to 31.9 per cent depending on which one you quote.
Worked in full in REIT Analysis and Valuation by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
The European Public Real Estate Association replaced its single EPRA NAV with three measures in its best practice recommendations, because one number could not answer three questions. A company that reinvests indefinitely is best read on net tangible assets. Someone asking what it would cost to recreate the portfolio needs the reinstatement value. Someone asking what shareholders would get in an orderly sale needs disposal value. NTA has become the figure most listed European property companies headline, and the one share price discounts are usually quoted against.
| Item | Amount |
|---|---|
| IFRS equity attributable to shareholders | 2,000.0 |
| Deferred tax on property revaluation gains | 300.0 |
| Share of portfolio intended to be held, not sold | 80% |
| Interest rate swaps at fair value (an asset) | 40.0 |
| Goodwill arising from deferred tax | 25.0 |
| Other goodwill | 15.0 |
| Other intangible assets | 10.0 |
| Fixed-rate debt: book 1,500.0, fair value | 1,380.0 |
| Purchasers' costs deducted by the valuer | 260.0 |
| Shares, millions; share price | 100.0; 17.00 |
The company has no convertible or other dilutive instruments. Rates have risen since the debt was fixed, so the swaps are in the money and the fixed-rate debt is worth less than its book value. All figures are fictional.
NRV = 2,000.0 + 300.0 deferred tax − 40.0 swaps − 25.0 deferred tax goodwill + 260.0 purchasers' costs = 2,495.0, 24.95 a share.
NTA = 2,000.0 + 240.0 (80% of the deferred tax) − 40.0 swaps − 25.0 − 15.0 goodwill − 10.0 intangibles = 2,150.0, 21.50 a share.
NDV = 2,000.0 − 25.0 − 15.0 goodwill + 120.0 debt mark (1,500.0 − 1,380.0) = 2,080.0, 20.80 a share. Deferred tax and swaps stay at their IFRS amounts.
Read the adjustments as a grid. Swaps are removed from NRV and NTA, because a company that holds its hedges to maturity will never realise their fair value, but kept in NDV, where they would be closed out. Deferred tax is added back in full in NRV, for the held share only in NTA, and not at all in NDV. Goodwill and intangibles are kept in NRV, removed from NTA, and in NDV only goodwill goes. Fixed-rate debt is marked to market in NDV alone.
| Measure | NAV | Per share | vs IFRS | Price discount |
|---|---|---|---|---|
| IFRS NAV | 2,000.0 | 20.00 | 0.0% | 15.0% |
| EPRA NRV | 2,495.0 | 24.95 | 24.8% | 31.9% |
| EPRA NTA | 2,150.0 | 21.50 | 7.5% | 20.9% |
| EPRA NDV | 2,080.0 | 20.80 | 4.0% | 18.3% |
The 3.45 a share between NRV and NTA is mostly purchasers' costs: a buyer of the portfolio pays them, a shareholder never receives them. Quoting the share price against NRV makes the stock look about 11 points cheaper than against NTA, with nothing about the business changed.
| Scenario | IFRS NAV | NTA a share | NDV a share |
|---|---|---|---|
| Base: swaps an asset of 40.0, debt at 1,380.0 | 2,000.0 | 21.50 | 20.80 |
| Rates back down: swaps a liability of 20.0, debt at 1,460.0 | 1,940.0 | 21.50 | 19.40 |
| Rates lower still: swaps a liability of 60.0, debt at 1,530.0 | 1,900.0 | 21.50 | 18.30 |
NTA does not move with rates at all, by design. NDV falls 2.50 a share as rates come down, because the cheap fixed-rate debt stops being cheap. The judgement inside NTA moves it far more than rates do:
| Share of portfolio held | NTA | Per share | Price discount |
|---|---|---|---|
| 0% | 1,910.0 | 19.10 | 11.0% |
| 50% | 2,060.0 | 20.60 | 17.5% |
| 80% | 2,150.0 | 21.50 | 20.9% |
| 100% | 2,210.0 | 22.10 | 23.1% |
A company that says it will sell a fifth of its portfolio, and then keeps it, has understated its NTA by 0.60 a share. One that says it will hold everything and then sells has overstated it. Check the disposal programme against the held share every year.
Net asset value built line by line, with the implied cap rate beside it, is in the free workbook for this case. For the cap rate based NAV analysts build from the property income, see how to calculate a REIT's NAV per share, and for the market's own valuation of the portfolio, a REIT's implied cap rate.
Usually EPRA NTA, the measure most listed European property companies headline, because it assumes the company holds its assets and does not pay purchasers' costs. In the illustration a 17.00 share price is a 20.9 per cent discount to NTA of 21.50, but 31.9 per cent to NRV, which includes 260.0m of purchasers' costs a shareholder never receives.
Because it marks fixed-rate debt and derivatives to fair value, as if the company were sold or wound up. In the illustration, with property values held constant, NDV falls from 20.80 to 18.30 a share as rates come down and the debt mark of 120.0m disappears and the swaps turn into a liability. NTA stays at 21.50.
Only the part relating to assets the company intends to hold rather than sell, which is a judgement disclosed in the accounts. With 300.0m of deferred tax and an 80 per cent held share, 240.0m is added back. Moving the judgement from 0 to 100 per cent moves NTA from 19.10 to 22.10 a share.
This article is one calculation from REIT Analysis and Valuation. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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