The impact of loan-to-value (LTV) on the sensitivity of Net Asset Value (NAV) premium/discount of South African Real Estate Investment Trust (SA REIT) share prices

Reid, Robyn Maclear

The impact of loan-to-value (LTV) on the sensitivity of Net Asset Value (NAV) premium/discount of South African Real Estate Investment Trust (SA REIT) share prices

Thesis / Dissertation

2026

Publisher

University of Cape Town

Department

Department of Construction Economics and Management

Faculty

Faculty of Engineering and the Built Environment

Abstract

This study examines the relationship between net asset value discounts/premiums (NAVDISC) and leverage, measured by the loan-to-value (LTV) ratio, within the South African Real Estate Investment Trust (SA REIT) sector. Concerns over persistent and sizable NAV pricing discrepancies and rising debt levels over the last few years have highlighted the need for a deeper understanding of the dynamics between these two key financial metrics within the SA listed property industry. Despite a growing body of international research on NAV spreads and leverage in REITs, findings have been mixed, and empirical evidence specific to the SA REIT market remains limited, particularly over the long-term, incorporating pre-and post-Covid 19 periods. This study seeks to address this gap. The research was undertaken using an unbalanced, pooled dataset of 26 JSE-listed SA REITs from March 2014 to February 2024, and a combination of correlation and regression analysis techniques, conducted against both Traditional (levered) and Unlevered NAVDISC. The findings confirm a highly statistically significant positive relationship between LTV and NAVDISC, indicating that both levered and unlevered NAV discounts increase (decrease) as leverage increases (decreases). Notably, while the Traditional NAVDISC results align with some prior studies, the significant positive relationship observed for Unlevered NAVDISC diverges from existing research. The sensitivity of pricing discrepancies to four varying ranges of LTV was also considered, with heightened, highly statistically significant positive relationships evident within the 40%<LTV≤50% range. Weaker positive associations were observed for Traditional NAVDISC in the 30%<LTV≤40% and LTV>50% ranges, whilst no clear relationship emerged for the LTV≤30% band. The study was further extended by the exploration of geometric mean growth rates in distributions (GMGD), a proxy for shifting investor expectations, as a secondary explanatory variable. The strong negative correlation with the error term of the main regressions, at an SA REIT company level, suggests that GMGD may be a meaningful predictor of NAVDISC. Taken together, these findings provide empirical support of the strong and sensitive relationship between leverage and NAV pricing deviations, highlighting the potential importance of LTV in explaining these discrepancies and offering practical insights for SA REIT stakeholders regarding capital structure management and distribution strategies.

Keywords

Property Studies

Reference:

Collections

Masters

Full item page