Does anyone else track the implied cap rate off NAV discount instead of just watching the yield

The implied cap rate off NAV discount is a legitimate lens, and the fact that you separated the yield from the entry cap rate is the right instinct. Those two numbers answer different questions. The yield tells you cash flow on purchase price. The implied cap rate tells you what you paid for the underlying real estate. At a 21% NAV discount with a 7.4% implied cap rate on net lease assets, you are buying real estate at a price that would be competitive in the private market, assuming the NAV holds.

That assumption is where most of the work is happening in your analysis. Net lease NAV estimates are sensitive to the discount rate used to value the lease streams and to tenant credit quality. If the consensus NAV is anchored to a cap rate environment from 12 to 18 months ago, the 21% discount may be smaller in real terms than it looks. The question I would ask before treating that spread as a signal: what discount rate did the analysts use in the NAV model, and does it reflect where net lease assets are actually trading in the private market right now?

On the convergence speed question, the risk you did not name is that the gap can stay open longer than your thesis requires. The guide content on this strategy describes the REIT-to-private-real-estate valuation gap as the longest since the early 2000s, which means historical precedent for closure exists but patience requirements are variable. A 7.4% implied cap rate is compelling entry if management is recycling capital well and the lease duration supports it, but the stock can sit at a discount to NAV indefinitely if generalist capital stays elsewhere.

The implied cap rate works as a signal when you pair it with management's demonstrated ability to surface NAV through asset sales or accretive acquisitions. If the portfolio is marked to market by actual transactions and the spread still exists, that is a harder argument against it.

What cap rate are the underlying analysts using in the NAV build, and have there been any recent portfolio transactions that either validate or challenge it?

The implied cap rate you calculated is a real metric and you are using it correctly. The yield (5.1%) tells you the income the stock pays relative to its current price. The implied cap rate (7.4%) tells you the income rate on the underlying properties relative to what you are paying for them through the discounted shares. Buying at a 21% NAV discount is, in effect, buying the properties at a cheaper price than the market currently assigns to them directly.

The part you are right to second-guess is NAV itself. Net asset value for a REIT is an estimate, built on appraisals and cap rate assumptions for the property sector. If the NAV estimate is stale or the appraised cap rates in the model are too low, the discount narrows or disappears on paper, and so does your margin. The quality of the NAV estimate matters as much as the size of the discount.

On whether it works as a buy signal: the strategy guide notes that the current REIT-to-private-real-estate valuation gap is the longest since the early 2000s, and many analysts frame it as a question of when it closes rather than if. That supports your framework in general. But "when" is doing a lot of work in that sentence. NAV convergence can take years, and the stock can widen the discount further before it closes. You are still holding the 5.1% yield while you wait, which is part of the equation.

One thing worth confirming with your own research: what cap rate assumption is baked into the consensus NAV you are using, and how does it compare to recent transaction data in net lease? That is the number where the whole calculation either holds or unravels.

What source are you pulling NAV consensus from, and is this a single-tenant or diversified net lease REIT?