Expert Insights and Trusted Valuation Estimates
We employ a multistep valuation process, as more fully described in Green Street's Pricing Model Report. In summary, our company-level analytical work includes the following:
- Extensive quantitative and qualitative analyses to assess the current market value of each company’s assets and liabilities.
- A systematic approach to ranking each company on a variety of critical factors to determine its merits relative to its peers to quantify the premium/discount to asset value at which it should be valued. This leads us to our warranted share price.
- The warranted share price is then compared to the current stock price to form our BUY/HOLD/SELL recommendations.
It is important to note that we employ a relative pricing model when making our company-specific BUY/HOLD/SELL recommendations (we discuss the overall pricing of REITs in our RMZ Forecasting Tool). We generally have an equal number of Buy-rated stocks and Sell-rated stocks within each property sector. In essence, we answer the questions of which REIT stocks are most overpriced and which stocks are most underpriced at any point in time.
The effectiveness of our methodology is demonstrated through the impressive performance of our investment recommendations. The strength of our research is rooted in the focus that we place on property-level analysis through our published reports. Green Street analysts focus solely on their analytical work, and providing support to our clients – we are not distracted by obligations faced by “sell side” analysts, such as investment banking.
NAV-Based Pricing Model
Our NAV-based pricing model has served as our primary tool for valuing REITs since 1989. The model is based on the logic that REIT valuation can best be assessed by analyzing separately the two key components of value:
- The net value of the in-place assets.
- The present value of future investment opportunities.
Discounted Cash Flow Model
We also utilize a discounted cash flow (DCF) approach toward valuation. Although the inputs vary substantially versus our NAV-based model, the outputs are typically quite similar. The DCF model provides a “sniff-test” for the output arising from the NAV-based approach.
REIT Share Price Premiums to Green Street NAV Estimates
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