Hi,
I'm new to real estate, sorry if my question is very basic. Does a REIT's NAV and dividend growth usually go inline? If I think a REIT's NAV should grow at 2% in the long-term, can I assume dividend will also grow at 2% in the long-term please?
Thanks!
Former RE IB Analyst here, I'll take a stab at answering this. Not sure what analysis this is for (I'm guessing Research at a bank).
Dividend - I would look at prior dividends paid each quarter. Has the REIT shown a propensity to increase dividends over time? If so, how often (every year or every 3 years, etc.)? If not, then I would likely assume no and you can point to real data. You could also look at the company's comps - do they?
NAV - This one is more interesting. I've never personally just assumed NAV would grow by a blanket X%. Here's how I would approach. Do an NAV analysis, apply a range of cap rates to the company's NOI to figure out what the current NAV per share is (pick mid point).
Then, read the Co's Fin Sups and Transcripts. What do they guide for $ amount of acquisitions and dispositions for next year and the next? Do they provide cap rates for these acq. and dispo (may have to assume or do some research)? Adjust NOI accordingly for these sales (GAV*cap rate).
Share Count - Do they provide leverage guidance for acquisitions or dispo (maybe assume 60-70%). Assuming the company is net acquisitions, and given ltv assumption, how many new shares would a company need to issue to fund said acquisitions. Add that number to your share count. You can now calculate the future NAV's and that implied NAV growth. Likely can only do this for 2019 and 2020.
Thank you so much, this is super helpful!
I didn't quite understand this part of what you said please: Do they provide leverage guidance for acquisitions or dispo (maybe assume 60-70%). Assuming the company is net acquisitions, and given ltv assumption, how many new shares would a company need to issue to fund said acquisitions.
what do you mean by assume 60-70%, what am I assuming there? How do I go from those assumptions to how many shares need to be issued?
Thanks
I'm assuming he means the LTV or amount of leverage they would use to fund these new acquisitions.
Thank you both! I have another question regarding this part of the calculation: "Share Count - Do they provide leverage guidance for acquisitions or dispo (maybe assume 60-70%). Assuming the company is net acquisitions, and given ltv assumption, how many new shares would a company need to issue to fund said acquisitions"
Here, let's say I calculate and think that they need to fund $100mm through equity issuance. How do I know how many new shares would they need to issue? Do I assume that the issuance price would be the same as current price , or is it current NAV? if I assume issuance price is the same as current price or current NAV, does this defeat the purpose of trying to calculate what NAV will be in the future?
Thank you so much for helping out a newbie here!
Paul is correct 60-70% LTV. For Dispositions, you could also take the average LTV across the portfolio which you should have from your NAV (property level debt + unsecured debt divided by the mid point of the RE value mentioned above).
Regarding your new question, say $100M of GAV @ 60% LTV. They need to fund $40M with equity. $40M / by current share price gives you the additional shares needed.
"if I assume issuance price is the same as current price or current NAV, does this defeat the purpose of trying to calculate what NAV will be in the future?"
So here's the way it typically works, if they buy properties at cap rates that are higher than their implied / valued cap rate, it is accretive to NAV. E.G. they buy properties at a 6 cap but the stock is traded at a 5 cap, then NAV was just created. You can really only do this for a year out with guidance they give or looking at their historical trends.** This analysis is only as good as the quality of your assumptions.**
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