Which metric is better to be used when analysing REITs - P/B or P/NAV?

Hi Eman!

The P/B ratio shows how expensive stock is compared to its books value. Company’s book value (also called equity, capital, shareholders funds etc.) is equal to company’s total assets less total liabilities.
P/B = market capitalization / shareholders’ equity

The P/NAV ratio shows how expensive the share is compared to its NAV (net asset value). This ratio is very similar to P/B ratio but in this case market values (not book values) are used. Mostly P/NAV is used for valuation of real estate companies.

P/NAV = market capitalization / (company’s assets in market value – company’s liabilities)

The NAV is a valuable metric to utilize when assessing REITs. Book value and similar ratios such have been found to be very unreliable when applied to REITs. The use of the NAV is an attempt to bypass book value in favor of providing a more accurate estimation of actual market value for REIT holdings.
NAV seeks to figure out the actual value of the REIT’s holdings by taking the market value and subtracting any debts, such as mortgage liabilities. ​​​