Question #16
Reading: Reading 33 Real Estate Investments
PDF File: Reading 33 Real Estate Investments.pdf
Page: 8
Status: Incorrect
Correct Answer: B
Your Answer: B
Question
The net asset value approach to valuation makes sense for REITs because:
Answer Choices:
A. NAV equals the value that public equity investors attach to a REIT
B. there exist active private markets for real estate assets
C. the price at which a REIT trades very closely tracks NAV
Explanation
Because active private markets for real estate assets exist, REITs lend themselves to a net
asset value approach to valuation. NAV reflects the estimated value of REIT assets to a
private market buyer, however this may be different from the value that public equity
investors would attach to the REIT. REITs have historically traded at a large premium or
discount to NAV.