Valuation: Asset value

What it is

You value the target by summing the appraised or marked-to-market value of its underlying physical or financial assets. The output: NAV (net asset value) per share. Compare to current market cap → gap.

The dominant framework for asset-heavy businesses where book value materially understates economic value: real estate, natural resources, business development companies (BDCs), royalty trusts, and certain financial holding companies.

When to use

• ✅ REITs, hotels, lodging companies (real estate at market value)
• ✅ Mining, oil & gas, timber (proven reserves at market prices)
• ✅ BDCs, holding companies (portfolio at fair value)
• ✅ Banks (book value with adjustments for hidden value/loss)
• ❌ Operating businesses where assets aren't separable from operations
• ❌ Software / IP-driven businesses (book value is meaningless)

Methodology

Real estate

1. Property-by-property NOI × cap rate (or sale-comparable price/door, price/sqft)
2. Sum + add other assets - debt + cash = NAV
3. Divide by share count → NAV / share

Natural resources

1. Proven reserves × forward strip prices
2. Less: extraction costs, taxes, royalties
3. PV at risk-adjusted discount rate
4. Plus: undeveloped acreage at appraised value
5. Less: net debt → NAV / share

BDCs / financial holdings

1. Portfolio at most-recent fair value (with sceptical adjustment)
2. Mark non-yielding assets explicitly
3. Adjust for accrued PIK income that may not be realised
4. Less: net debt + preferred → NAV / share

What goes into a defensible NAV

1. Source for each asset class
   • Real estate: third-party appraisals, comparable sales, cap-rate comparables
   • Resources: independent reserve reports (NI 43-101, SEC PRMS), forward curves
   • Holdings: most-recent 10-Q fair value disclosure
2. Discount where appropriate — non-controlling stakes, illiquid positions, regulatory overhangs
3. Sensitivity to key inputs (cap rate, commodity price, discount rate)

Premium/discount framing

NAV-based valuations are usually framed as:

• "Target trades at [X]% discount to NAV" (long thesis)
• "Target trades at [X]% premium to NAV without operating performance to justify it" (short thesis or sell recommendation)

Land & Buildings' Welltower 2026 deck uses the second framing — sells WELL at 144% NAV premium and rotates to Ventas / AHR.

Exemplars

• Pershing Square · General Growth Properties (May 2010) — REIT NAV thesis post-bankruptcy emergence
• Pershing Square · Howard Hughes (Sohn 2017) — real-estate NAV with development upside
• Land & Buildings · NHI, Welltower (2024–2026) — REIT NAV framework across multiple campaigns
• Greenlight · Pioneer Natural Resources (May 2015) — oil & gas reserve-value thesis
• Greenlight · Allied Capital (Jun 2002) — BDC-portfolio fair-value attack (the inverse: arguing book overstated)
• Carl Icahn · IEP investor presentation (2015) — holding-company NAV framework

Full list: examples/by_valuation.json → asset_value

See also

• valuation/sum-of-parts.md — overlapping when separating asset pools
• theses/breakup-spinoff.md — REIT conversion theses use NAV
• theses/undervaluation.md — NAV gap is a specific type of undervaluation
• patterns/sum-of-parts.md — rhetorical pattern when assets are the parts