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BeginnerBrazilian REITs · Lesson B4.4 · Module B4

Why does the share price go up and down?

Module B4: Your first share

11 slides~5 minquiz at the end

In this lesson

  • Book value is not price
  • The math of how the Selic moves the share
  • It fell: the fund or interest rates?
See the slides
Phone showing a falling price chart on top of a spreadsheet

Brazilian REITs · Lesson B4.4

Same buildings. Why did the share fall?

The price changes with every trade on the exchange. The rent doesn't.

Two values

Book value is not price

Book value (BV)

Balance sheet

  • Comes from accounting and appraisals
  • Moves slowly

Market price

Supply and demand

  • Set by each trade
  • Changes every session

P/BV = price ÷ book value. It gets its own lesson (I4.2).

Do the math

What the market pays for the same income

R$ 0.80per month×12=R$ 9.60per year
R$ 9.60÷8%low rates=R$ 120per share
R$ 9.60÷10%high rates=R$ 96per share

The percentage is the annual return the market demands from the FII. Illustrative figures.

Same income, different prices

The more the market demands, the lower the price

  1. R$ 1377%
  2. R$ 1208%
  3. R$ 1079%
  4. R$ 9610%
  5. R$ 8711%

Every bar pays R$ 9.60 a year. Below, the annual return demanded.

The main driver

How the Selic reaches the share price

  1. Selic goes upfixed income pays more
  2. Investors comparewhy take risk for the same return?
  3. They demand more8% a year becomes 10%
  4. The price fallsuntil the income yields 10%

It works in reverse too: falling rates tend to push the share price up.

How big the effect is

Not a single rent changed

−20%

on the share, from R$ 120 to R$ 96, just because the market now demands 10%

Whoever bought at R$ 120 and held still receives the same R$ 9.60 a year.

The check

It fell: did the fund get worse or did money get pricier?

Just interest ratesThe fund got worse
Income per sharesamefell
Vacancy and defaultsstablewent up
Expected Selicwent upmay not have moved

Before concluding, look at the last 12 months of income. Both can happen at once.

Remember this

Three ideas from this lesson

  1. Price is not book valueBook value comes from the balance sheet. Price comes from buyers and sellers.
  2. Rates move pricesA high Selic makes the market demand more — and the share falls to deliver it.
  3. Check before concludingA drop with unchanged income may just be the price of money.

Quick test · 1 of 2

Same rent, share −20% in a year of rising rates. Most likely?

See answer

A higher required return. With fixed income paying more, the price falls until the FII yields more. Still, check the income before concluding.

Quick test · 2 of 2

A FII pays R$ 12 a year and the market demands 10%. Price?

See answer

R$ 12 ÷ 10% = R$ 120. If the market starts demanding 12%, the same R$ 12 is worth R$ 100.

Lesson complete

Next lesson

B4.5Beginner · Lesson B4.5Is a FII safe? Is there a guarantee?No deposit insurance, no redemption, no guaranteed income — and what still protects you.Continue
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Image credits
  • Leeloo The First · Pexels · Pexels License — Pexels
  • Andrea De Santis · Pexels · Pexels License — Pexels

Educational content, written for learners. Not investment advice.