Five adjustments turn the loan to value a company reports into the EPRA measure, and most of them push it up.
EPRA LTV is net debt divided by total property value, where net debt includes hybrid instruments and net payables, joint ventures are included at the group's share, and the share of non-controlling interests is removed. On an illustrative listed property company that reports a 37.0 per cent loan to value (2,500 of net debt over 6,750 of property), the same balance sheet gives an EPRA LTV of 44.5 per cent, 3,272 over 7,350. The gap is mostly a perpetual hybrid that the accounts show as equity.
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 company is illustrative, with the features that usually separate the two measures: a hybrid bond classified as equity, a 50 per cent joint venture accounted for by the equity method, and a subsidiary in which a partner owns 20 per cent. Figures are in millions.
| Item | Amount |
|---|---|
| Bank loans / bonds / commercial paper | 900 / 1,800 / 100 |
| Cash | 300 |
| Perpetual hybrid bond, shown in equity | 400 |
| Investment property / under development / held for sale | 6,200 / 400 / 150 |
| Trade and other payables / receivables | 260 / 140 |
| 50% joint venture, 100% basis: debt / cash / property / net payables | 600 / 40 / 1,400 / 20 |
| 80%-owned subsidiary, consolidated: debt / cash / property | 200 / 10 / 500 |
| Interest rate swaps, fair value asset | 60 |
Reported LTV = (borrowings − cash) / property = (2,800 − 300) / 6,750 = 37.0%
EPRA net debt = borrowings + hybrids + net payables − cash, plus the JV share, less the non-controlling share = 2,800 + 400 + 120 − 300 + 290 − 38 = 3,272
EPRA total property value = group property + JV share − non-controlling share = 6,750 + 700 − 100 = 7,350
EPRA LTV = 3,272 / 7,350 = 44.5%
The joint venture contributes half of its 600 of debt, 10 of its net payables and half of its 40 of cash, 290 of net debt in all, against 700 of property. The subsidiary is fully consolidated in the accounts, so the partner's 20 per cent is taken out: 40 of debt less 2 of cash, and 100 of property. The swap asset stays out of both lines, because interest rate derivatives are excluded.
| Step | Net debt | Property value | LTV |
|---|---|---|---|
| Reported | 2,500 | 6,750 | 37.0% |
| Add the hybrid bond | 2,900 | 6,750 | 43.0% |
| Add net payables | 3,020 | 6,750 | 44.7% |
| Add the JV share | 3,310 | 7,450 | 44.4% |
| Remove the non-controlling share | 3,272 | 7,350 | 44.5% |
The hybrid alone accounts for 5.9 of the 7.5 points between the two measures. That is the point of the definition: a perpetual subordinated bond may be equity for the accountant, but it ranks ahead of the shareholders, and the coupon has to be paid or deferred at a cost. Net payables add 1.8 points, because cash that is owed to suppliers is not free cash. The joint venture, geared at 40 per cent on its own, barely moves the ratio here; a highly geared JV would push it up.
Because the numerator is fixed and the denominator moves, both measures rise faster than values fall, and from different starting points.
| Fall in values | EPRA LTV | Reported LTV |
|---|---|---|
| 0% | 44.5% | 37.0% |
| 10% | 49.5% | 41.2% |
| 20% | 55.6% | 46.3% |
| 30% | 63.6% | 52.9% |
On the EPRA measure, a 25.8 per cent fall in values takes the company to 60 per cent; on the reported measure it takes 38.3 per cent. For a 50 per cent threshold the cushions are 11.0 and 25.9 per cent. An investor who compares the company's reported ratio with a peer's EPRA ratio, or with a covenant written on a different definition, overstates the headroom by almost half.
EPRA LTV is a disclosure measure for comparing companies, not a covenant. Bond and loan covenants have their own definitions, often closer to the reported figure, and must be tested on their own terms.
Start from reported net debt and property, then add hybrids and net payables, add the JV share, and take out the non-controlling share. Here that turns 37.0 per cent into 44.5, and a 25.8 per cent value fall into a 60 per cent loan to value. The book's REIT template, with the leverage tests and net debt to enterprise value already wired, is in the free workbooks for this book. For EPRA's net asset measures on the same balance sheet logic, see how to calculate EPRA NTA, NRV and NDV, and for leverage against earnings, net debt to EBITDAre.
Yes. EPRA LTV counts hybrid instruments, including perpetual bonds and convertibles, as debt whatever their IFRS classification, because they rank ahead of ordinary shareholders. In the illustrative company a 400 perpetual hybrid shown in equity lifts the loan to value from 37.0 to 43.0 per cent on its own, the largest single adjustment.
Net payables are added to net debt; net receivables are added to total property value, not deducted from debt. If the illustrative company had 120 of net receivables, the correct EPRA LTV would be 42.2 per cent; deducting them from debt instead would show 41.3 per cent, flattering the ratio.
No. Interest rate derivatives are left out of both net debt and property value, while foreign currency derivatives are included in net debt. Deducting the illustrative 60 swap asset from debt would understate the EPRA LTV at 43.7 per cent instead of 44.5.
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.
Get the book on Amazon →Free companion files
Also on Amazon UK · Amazon Germany · Amazon France · Amazon Canada
Reading guide: real estate investing, finance and fund management → · All 1340 articles →
If this book helped, or didn’t, a few lines on Amazon are worth more than they look: they are what the next reader goes on. Write a review. The workbook stays free either way.