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This study documents the wide deviation of securitized real estate assets in equity REITs from the value of the underlying commercial properties. A procedure for estimating the net asset value of REITs is developed and the estimates are used to investigate the sources of premiums/discounts from net asset value in a large sample of equity REITs. To avoid measurement error bias, two-way analysis of variance is used to test for differences among size and property-type categories. The results indicate that retail REITs trade at significant premiums relative to the average REIT while warehouse/industrial REITs trade at discounts and small REITs trade at significant discounts while large REITs trade at premiums. The discounts and premiums from net asset value do not translate into higher cash flow yields.
Capozza et al. (Sun,) studied this question.