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CFA Level II Exam · Investments in Real Estate through Publicly Traded Securities

How to Calculate REIT NAV per Share and Premium or Discount

Updated 7 October 2026 · Fact-checked

NAV per share is the estimated market value of a REIT's real estate, plus other assets, minus liabilities, divided by shares outstanding. You value property by dividing forward 12-month NOI by a cap rate, then adjust. Compare share price to NAV: above is a premium, below is a discount.

Understand Real Estate Valuation: NAV and Premium or Discount

A REIT owns property and its shares trade on an exchange. Two values exist side by side. One is the price you pay for the share. The other is what the underlying assets are worth. Net asset value (NAV) is the second one: the estimated market value of assets minus liabilities.

The NAV approach starts with the properties. You take net operating income (NOI), which is rental income less operating expenses, before depreciation, interest and income tax. You divide it by a cap rate to get a property value. A cap rate is the yield investors demand on a property. A lower cap rate gives a higher value.

The curriculum's NAV applies the cap rate to forward (next-12-month) NOI, because values reflect future income. If the question gives only current NOI and a growth rate, grow it first. Where the question indicates it, adjust NOI for non-cash items such as straight-line rent, so that the NOI reflects the cash rent actually expected. Cap rates come from recent transactions of similar properties, so NAV is only as good as that market evidence.

Next you adjust. Add non-operating assets such as cash, land held for development, and other receivables. Subtract all liabilities such as debt and other obligations. Preferred stock, if any, is also deducted because it ranks ahead of common shareholders. Divide by common shares outstanding.

Finally you compare. If the market price is above NAV, the REIT trades at a premium. If below, a discount. Premium or discount = (Price ÷ NAV) − 1. A discount may signal a bargain, or it may reflect weak management, poor governance, or doubt about the cap rate. A premium may reflect strong growth prospects or management skill. NAV is an estimate, so treat the result as a starting point.

Key formulas to remember

Property value
Value = Forward 12-month NOI ÷ Cap rate
Adjust NOI for non-cash items such as straight-line rent where the question indicates it. Do not subtract depreciation or interest.
NAV
NAV = Property value + Other assets − Liabilities (− Preferred stock)
Other assets include cash, land, and receivables. Deduct preferred stock before dividing by common shares.
NAV per share
NAV per share = NAV ÷ Common shares outstanding
Use shares outstanding, not weighted average shares.
Premium or discount
Premium (discount) = (Price ÷ NAV per share) − 1
Positive means premium. Negative means discount.
Implied cap rate
Implied cap rate = NOI ÷ Implied property value
Implied property value = market capitalization + liabilities + preferred stock (if any) − other assets. Compare this to market cap rates.

How to solve Real Estate Valuation: NAV and Premium or Discount questions

Use the same sequence on every NAV question. Pull the data from the vignette and exhibits before you calculate.

  1. 1Find the NOI figure and check whether it is forward (next 12 months) or current. If only current NOI is given with a growth rate, grow it first.
  2. 2Check whether the question indicates non-cash items such as straight-line rent. If so, adjust NOI to remove them before applying the cap rate.
  3. 3Identify the cap rate to apply. Check whether one rate applies to all properties or different rates to different property types.
  4. 4Divide NOI by the cap rate for each property group, then add the values.
  5. 5Add other assets named in the exhibit, such as cash, land and receivables.
  6. 6Subtract liabilities, and subtract preferred stock if it is listed, to get NAV for common shareholders.
  7. 7Divide by common shares outstanding to get NAV per share.
  8. 8Compare market price with NAV per share. Compute (Price ÷ NAV) − 1 and label it premium or discount.
  9. 9Interpret in one line: the cap rate sensitivity, or reasons for the premium or discount, as the question asks.

Quickest way: Shortcut: value first, bridge second

When to use it: Use when the exhibit lists many balance sheet items and time is short.

  1. Compute property value as forward NOI ÷ cap rate straight away and write it down.
  2. Scan the exhibit once for items to add (cash, land, receivables) and items to subtract (debt, payables, preferred). Ignore book value of property, depreciation and goodwill.
  3. Do one running total, then divide by shares.
  4. For premium or discount, divide price by NAV and subtract 1. Sign tells you the answer.
  5. For sensitivity questions, remember the direction: a higher cap rate lowers value and NAV.

Common mistakes in Real Estate Valuation: NAV and Premium or Discount

  • Using book value of properties instead of NOI ÷ cap rate.

    The balance sheet is in the exhibit and looks like the obvious source.

    Fix: NAV uses estimated market value. Replace book value of real estate with NOI ÷ cap rate.

  • Subtracting depreciation or interest from NOI.

    Students confuse NOI with net income.

    Fix: NOI is before depreciation, interest and income tax. Do not deduct them.

  • Forgetting to deduct preferred stock.

    It is listed as equity, not debt.

    Fix: Preferred ranks ahead of common holders. Deduct it to get NAV for common shares.

  • Reversing premium and discount.

    Students divide NAV by price instead of price by NAV.

    Fix: Always use (Price ÷ NAV) − 1. Price above NAV is a premium.

  • Applying the cap rate to the wrong year of NOI.

    The vignette gives last year's NOI and a growth rate in different places.

    Fix: Use forward 12-month NOI. If only current NOI is given, grow it by the stated rate before dividing.

  • Ignoring non-cash rent when the question points to it.

    Straight-line rent is included in reported rental income, so it looks like normal NOI.

    Fix: If the question indicates straight-line rent, remove the non-cash portion from NOI before applying the cap rate.

  • Treating a discount as automatically a buy signal.

    Discount looks like cheap price.

    Fix: Consider governance, leverage, growth and whether the cap rate is realistic before concluding.

Worked examples

Example 1

Vignette: Harbor REIT expects next-year NOI of $48 million. Comparable properties sell at a cap rate of 6.0%. Harbor holds cash of $15 million and land held for development valued at $25 million. Liabilities total $380 million. There are 20 million shares outstanding, trading at $28. Q1: Estimate NAV per share. Q2: State the premium or discount. Q3: If the cap rate is 6.4% instead, will NAV per share be higher or lower?

Show the solution
  1. Property value = $48 million ÷ 0.06 = $800 million.
  2. NAV = 800 + 15 + 25 − 380 = $460 million.
  3. NAV per share = 460 ÷ 20 = $23.00.
  4. Premium = 28 ÷ 23 − 1 = 0.2174, about 21.7%.
  5. A higher cap rate of 6.4% lowers property value to 48 ÷ 0.064 = $750 million, so NAV falls to $410 million, or $20.50 per share.

Answer: Q1: $23.00 per share. Q2: premium of about 21.7%. Q3: lower ($20.50 per share).

Example 2

Vignette: Atlas Realty Trust has two property groups. Offices: forward NOI of ₹120 crore at a cap rate of 8%. Retail: forward NOI of ₹90 crore at a cap rate of 7.5%. Other assets are ₹60 crore. Debt and other liabilities are ₹900 crore. Preferred stock is ₹100 crore. There are 10 crore common shares priced at ₹135. Q1: Estimate NAV per share. Q2: State the premium or discount. Q3: Which adjustment would increase NAV: an extra ₹50 crore of cash or a ₹50 crore increase in liabilities?

Show the solution
  1. Offices = 120 ÷ 0.08 = ₹1,500 crore.
  2. Retail = 90 ÷ 0.075 = ₹1,200 crore. Total property value = ₹2,700 crore.
  3. NAV for common = 2,700 + 60 − 900 − 100 = ₹1,760 crore.
  4. NAV per share = 1,760 ÷ 10 = ₹176.
  5. Discount = 135 ÷ 176 − 1 = −0.2330, about −23.3%.
  6. Extra cash is an asset and raises NAV. More liabilities lower it.

Answer: Q1: ₹176 per share. Q2: discount of about 23.3%. Q3: the extra ₹50 crore of cash.

Exam tips

  • Read the exhibit for the NOI label first. Check whether it is forward or current, and whether the question mentions straight-line rent. A wrong year is a classic trap.
  • Write the NAV bridge as a short list: property value, plus assets, minus liabilities, minus preferred. It stops you missing an item.
  • Expect a third question on interpretation: why a REIT may trade at a discount, or what a higher cap rate does. Know the direction without calculating.
  • Items such as depreciation, book value of buildings and goodwill are distractors. Ignore them for NAV.
  • Check your sign on premium or discount. A price below NAV must give a negative answer.

Real Estate Valuation: NAV and Premium or Discount in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Real Estate Valuation: NAV and Premium or Discount: frequently asked questions

How do you calculate NAV per share for a REIT?

Divide forward 12-month NOI by a cap rate to get property value. Add other assets, subtract liabilities and any preferred stock, then divide by common shares outstanding.

What does a REIT trading at a discount to NAV mean?

The share price is below the estimated value of the underlying net assets. It can signal undervaluation, but it can also reflect weak management, high leverage, poor growth prospects, or an optimistic cap rate in the NAV estimate.

Why is NAV for a REIT not taken from the balance sheet?

Book values of property are based on historical cost less depreciation, so they can be far from market value. The NAV approach uses income and market cap rates to estimate current value.

What is the effect of a higher cap rate on NAV?

A higher cap rate gives a lower property value for the same NOI. That lowers NAV and NAV per share, all else equal.