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
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
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