Why do Turkish REITs trade at discount to net asset value?

Discount to net asset value (NAV) has been a long-standing problem for the Turkish REITs (TREITs) implying some serious weaknesses for the industry with some potential portfolio management problems. The goal of the paper is to explore main determinants of NAV discount in the context of rational and noise trader approaches over the period of 2010 Q1 and 2018 Q1 for 18 TREITs. Employing a unique data set, the present paper is the first NAV-based REIT pricing study for TREITs in the existing empirical literature. We run an unbalanced panel data by employing pooled OLS regressions and employ two dependent variables involving levered and unlevered NAV discount rates, respectively. The results mainly suggest that levered NAV discount in TREITs can be explained by the financial performance, leverage, liquidity, size, market sentiment, and appraisal bias besides the EPRA membership and property focus (e.g. retail REIT). We argue that the higher leverage and better financial performance result in lower levered NAV discounts and that fair value accounting may result in higher NAV discounts due to appraisal bias.