Which Factors and Variables could Explain Discounts and Premiums to Net Asset Value in Real Estate Companies?

Abstract: There have been previous studies aimed at finding out what factors influence whether a company's shares are trading at a premium or at a discount to its net asset value. Several studies have examined all or large parts of the market but have not at an early stage focused on niche markets. Many papers have also been based on data from other countries such as the UK, France, the Netherlands, Australia, and the US and have been executed under completely different macroeconomic conditions than those prevailing in Sweden in 2022. This study aims to investigate which factors can explain premium and discounts in relation to net asset value in Swedish real estate companies, listed on the OMX Stockholm Real Estate GI index. The study is based on 12 real estate companies listed on OMX Stockholm Real Estate GI. For a company to be relevant, it must have been listed on the index continuously since 2011. The data cover the period 2011-2021 and the results are based on three models: An OLS regression model, a fixed effect model, and a random effect model. Overall, the results of the study show that the company's size, leverage ratio, and investors' sentiment of the market correlate positively with the net asset value discount. At the same time, there is a negative correlation between the net asset discount and the stock volatility as well as return on equity. The results also showed that the industrial real estate sector correlated negatively to net asset discounts in some of the models used. The liquidity variable as well as the office and retail sectors had no statistically significant impact on net asset value discounts in real estate companies.