The market knows best, so the thinking goes. At any given time, it may overprice some companies and underprice others, but in the long run, the market will find the right price. Generally speaking, the businesses whose share prices are rising are doing well, and the ones whose share prices are falling are not.
And so it is with real estate investment trusts (Reits). A discount or premium to net asset value (NAV) is effectively a bet from the market on where a Reit’s NAV is heading. And the market tends to get those bets right.
There are many issues with these simple assumptions, but it is worth looking collectively at the sector to examine where Reits are placing their money as it stands. What would such a portfolio look like? To find out, Investors’ Chronicle crunched the numbers on the sorts of buildings the top 35 Reits own, weighted according to their market capitalisation.