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- October 1, 2018: Vol. 30, Number 9

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Value signaling: Why have REITs been trading at discounts, and what does it mean for private real estate?

by Mard Naman

The past few years have seen a wide gap between public- and private-market net asset values. REITs have historically traded at a 2 percent premium to NAV, but recent levels have been about a 7 percent discount, according to Rick Romano, head of global real estate securities at PGIM Real Estate. Depending on the index used, some analysts have found an even wider gap.

Although it is not unusual to see short-term divergence between the public and private markets, the current gap has been more pronounced and sustained. “It has effectively been three to four years that REITs in major property sectors have traded, on average, at a discount to NAV,” says Cedrik Lachance, director of REIT research for Green Street Advisors.

While there does not appear to be one simple explanation for the valuation gap, analysts have pointed to numerous factors. Scott Crowe, chief investment strategist for CenterSquare Investment Management, sees two major drivers. The first is the correcti

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