By MoneyBees
A REIT's price to NAV from its unit price and NAV per unit: the discount or premium, yield at the price and at NAV, and how gearing magnifies a change in valuations.
The unit price divided by the net asset value per unit. It is the REIT version of price to book. Below 1.0x the units trade at a discount to the REIT's reported net assets, above 1.0x at a premium.
In its financial results and annual report. The MAS Code on Collective Investment Schemes requires the annual report to show NAV per unit at the start and end of the year, with the traded unit price.
Not on its own. A discount can reflect doubts about property valuations, rental income, interest costs or debt. P/NAV tells you the price against book value, not whether the book value is right.
MAS requires a full valuation of each property by a valuer at least once a financial year, and the same valuer cannot value a property for more than two years in a row.
Debt stays the same when valuations move, so the change falls on unitholders. At 40% gearing, a 10% fall in property values cuts NAV by about 16.7%.
Since 28 Nov 2024, a REIT's gearing may not exceed 50% of its total assets, and the interest coverage ratio must be at least 1.5 times. Below 1.8 times, the manager must disclose its plans.
The distribution is the same whatever you pay. Paying S$0.90 for a unit with S$1.20 of NAV and 6 cents a year gives 6.67%, against 5% if you paid NAV.
REITs that pay out at least 90% of their taxable income get tax transparency from IRAS, and individuals who receive the distributions directly are exempt from tax on them.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).