Consider a REIT that holds high quality office buildings in some of the best locations in the US. The REIT is currently traded at a price of $64/share and there are 130 million shares outstanding. 

Using the information below answer the following questions: 

Expected next year total revenue: $750M 

Expected next year total expenses (including interest and depreciation): $380M 

Expected next year depreciation: $90M 

Expected next year interest: $70M T

otal debt: $1.6B 

Current office CAP in the US: 4.5% to 6.0% depending on quality and location. 

a. What is your estimation for a fair market value for a share of the REIT described? Show your work! 

b. What is your estimation for a fair price to pay for a share of the REIT described, if you require a 7.5% rate of return on an unlevered basis and expect the REIT to increase NOI at an average rate of 2.5%? Should you buy shares of that REIT?

Answer rating: 100% (QA)

Total revenue 750 M Total Expenses 380M Depreciation 90M Interest Expense 70M Operating Expense Tota... View the full answer