Need help with questions 12-14. Would really appreciate it if you could show how

Question

Need help with questions 12-14. Would really appreciate it if you could show how you got your answer

Net revenue $20,000,000

Less:

Operating expenses 9,800,000

Depreciation and amortization 4,400,000

Income from operations 5,800,000

Less:

Interest expense 1,280,000

Net income $4,520,000

12. Consider the financial statements for a REIT, given above. Price multiples for comparable REITs are about 10 times current funds from operation (FFO). What price does this suggest for the REIT’s shares if 1,000,000 shares are issued?

13. A REIT has an NOI of $15 as share and currently pays a dividend of $10 a share. The dividend is projected to increase by 4 percent by next year and continue to increase by 4 percent per year thereafter. Assuming that the blended cap rate is 9.75 percent and the required rate of return is 10.5 percent, what value would the Gordon Dividend Discount Model provide? 14. Using the information from the question above, what would the net asset value (NAV) of the REIT be?

14. Using the information from the question above, what would the net asset value (NAV) of the REIT be?

Explanation / Answer

12. Current funds from operation (FFO) =4520000 + 4400000 = $8,920,000

So REITs share price is = (8,920,000 * 10)/1,000,000 = $89.20

13. Using Gordon Dividend Discount Model, Value of stock = D1/ (k - g)

D1=10*(1+0.04)=10.4, k = cap rate i.e 9.75 percent,

g = 4%,

Value of stock = 10.4/(0.0975 - 0.04) = $180.87

14. Debt is not available here, though interest is paid.

NAV would be market value of the REIT minus mortgage debt i.e. (180.87*1,000,000 - mortgage debt )

Since value of mortgage debt is not available and assuming it is zero, NAV would be $180.87

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