Why does Embassy REIT book value keep dropping?

Why does Embassy REIT book value keep dropping, even when they are consistently making profits year after year.

Also they own prime real estate, which in turn should appreciate and not depreciate right?

I am unable to figure out why the book value is going down steadily.

Please share some insights.

Thank you

  1. Introduction of SPV tax
  2. Promotors group Black rock wants to exit the group and selling stake consistently. They want to exit completely.
  3. Lot of regulation changed and Rise in interest rate make it tougher.
  4. Lot of debt and reinvest in new project.
  5. Its commercial real estate hence , pricing and valuation is arbitrary as its doesn’t sold often only gets leased.

Also , its biggest misconception . Real esate is depreciating asset, its only because of inflation and high demand in particular area makes it an appreciating asset and with commercial property its more depreciating and requires maintenance than non comm. Any rise in interest rates and slow growth demands its big elephant

Interesting questions and multiple parts to it. Before going to answer, lets clarify concepts of book value and Fair value

The book value of an asset refers to its cost minus depreciation over time. It is the value of an asset based on its balance sheet. The fair value of an asset reflects its market price; the price agreed upon between a buyer and seller.
So basically you do not adjust book value for changes in market prices (appreciation of RE price) that adjustment is shown in Fair value or NAV

And this from their financial statement

So while Book value is reducing, Fair value / NAV is increasing.

In a normal company this will increase book value. But for REIT, regulations require that they distribute at least 90% of their income as distribution to unit holder. For last couple of years, Embassy payout ration is 100%, so they are distributing everything they are earning, and hence no impact of this on book value

Hope this helps


Frankly none of this is relevant to book value. This affects market price of units, not the book value (except for maybe 4th point)


Thank you Akash for quick and detailed answer.

Here is some followup:

  1. So, Book value will never go up because Embassy and other reits will always have to give away their earnings?
  2. Since Book Value is going down, does it mean REITs are depreciating assets?
  3. Is there any reason at all to motivate one to invest in Embassy REIT? because it in itself is losing book value as we speak.
  4. One fine day it will become zero?

REITs (and for that matter any investment trust) are different than stocks and using same metrics (like book value / EPS) is not correct way to value it.

Technically yes, buildings are depreciating asset, and so does REIT. Somehow we all are wired to think that home/land value always increases, but that is not always the case. At least from accounting perspective, it remains a depreciating asset.

Yes, because you should not be investing in REIT for its book value. You invest in it for getting a cashflow out of it.

Probably I would suggest to read this article, to get some better insight on REIT