1. At the end of day on Dec 31, 2014, GE (i.e. the parent company) had a closing stock price of $25.27 and 10,057,380,000 shares outstanding. Why cant this and other publicly available information be used to accurately estimate the market value of GE Capital Real Estates equity directly? 2. This case study uses relative valuation. An alternative method to estimate equity value is to use the discounted cash flow approach with expected cash flows for the firms equity holders. What is the difficulty in employing the discounted cash flow approach in this context for GE Capital Real Estate? 3. The first step in relative valuation involves identifying a group of comparable firms that are in the same industry as the firm that is being valued and have similar characteristics. Discuss whether the six real estate firms listed above are reasonable comparables for GE Capital Real Estate. You may want to look up these companies for more details. 4. The second step in relative valuation requires a valuation metric, or a multiple. The most commonly used multiple in equity valuation is the P/E ratio, defined as the ratio of the stock price to the earnings per share for the most recent four quarters. Discuss some of the advantages and disadvantages of using the P/E ratio. What are other alternatives? 5. Calculate the P/E ratio for each of the six comparable firms. Then find the average. This will give us the multiple for GE Capital Real Estate. 6. The third step in relative valuation is an initial estimate of GE Capital Real Estates equity value. Use the multiple from step 5 and GE Capital Real Estates 2014 earnings (provided in the Introduction section) to find the estimate. 7. The final step involves refining the initial estimate. Discuss the appropriateness of including all six of these firms as comparables based on their: a. Size (Assets & Sales) b. Geographic distribution of assets c. Components of ROE Profit Margin, Asset Turnover, Assets/Equity ratio 8. One simple approach to refine the initial estimate is to omit firm(s) whose P/E ratios are wildly different from the rest of the group. Furthermore, Brookfield Property Partners is incorporated outside the United States and is therefore not subject to the same SEC filing requirements as the other firms. As a result, their financial statements may not be strictly comparable with the rest of the firms that are incorporated in the United States (see page 6 of Brookfield Property Partners 2014 Annual report for additional details). Eliminate this and any other firm(s) whose P/E ratio is significantly different than the others and repeat steps 5 & 6. This is the final estimate. 9. According to GEs 10-K report for the year ending on Dec 31, 2015, they closed most of their real estate business for about $32 Billion. In addition, they sold their remaining real estate assets in 2016 but they didnt disclose the proceeds from those sales in their next 10-K report. Lets attempt to arrive at a rough estimate of the value of those assets that were sold in 2016. From the operations that were discontinued in 2015, they could generate $2.969 billion in revenues in the prior year. These assets were sold for $32 billion. From the operations that were discontinued in 2016, they could generate $0.911 billion in revenues9. What would be your estimate for the value of those latter assets? Assume that the ratio of revenues to market value of assets (i.e. the asset turnover) is the same. 10. The procedure in the previous step provides us with an estimate of the market value of GE Capital Real Estates assets (by including both the 2015 and 2016 values). Next, you need to arrive at an estimate of their liabilities. GE did not provide the value of liabilities for its real estate division separately. They did provide book values of assets and liabilities for all their discontinued operations, which included their real estate business. For 2015, the assets of all discontinued operations were listed as $120.951 billion while the liabilities of all discontinued operations were listed as $46.487 billion10. Make two assumptions here: (i) the same ratio of liabilities to assets remains valid for the real estate component; and (ii) while these are book values, the same ratio holds true for market values as well. Using these assumptions, what would your estimate for GE Capital Real Estates liabilities be? 11. Use the two steps above to arrive at an alternate estimate of the market value of GE Capital Real Estates equity. How does this compare to your earlier estimate from step 8 using comparables?

8. One simple approach to refine the initial estimate is to omit firm(s) whose P/E ratios are wildly different from the rest of the group. Furthermore, Brookfield Property Partners is incorporated outside the United States and is therefore not subject to the same SEC filing requirements as the other firms. As a result, their financial statements may not be strictly comparable with the rest of the firms that are incorporated in the United States (see page 6 of Brookfield Property Partners 2014 Annual report for additional details). Eliminate this and any other firm(s) whose P/E ratio is significantly different than the others and repeat steps 5 & 6. This is the final estimate. 9. According to GEs 10-K report for the year ending on Dec 31, 2015, they closed most of their real estate business for about $32 Billion. In addition, they sold their remaining real estate assets in 2016 but they didnt disclose the proceeds from those sales in their next 10-K report. Lets attempt to arrive at a rough estimate of the value of those assets that were sold in 2016. From the operations that were discontinued in 2015, they could generate $2.969 billion in revenues in the prior year. These assets were sold for $32 billion. From the operations that were discontinued in 2016, they could generate $0.911 billion in revenues9. What would be your estimate for the value of those latter assets? Assume that the ratio of revenues to market value of assets (i.e. the asset turnover) is the same. 10. The procedure in the previous step provides us with an estimate of the market value of GE Capital Real Estates assets (by including both the 2015 and 2016 values). Next, you need to arrive at an estimate of their liabilities. GE did not provide the value of liabilities for its real estate division separately. They did provide book values of assets and liabilities for all their discontinued operations, which included their real estate business. For 2015, the assets of all discontinued operations were listed as $120.951 billion while the liabilities of all discontinued operations were listed as $46.487 billion10. Make two assumptions here: (i) the same ratio of liabilities to assets remains valid for the real estate component; and (ii) while these are book values, the same ratio holds true for market values as well. Using these assumptions, what would your estimate for GE Capital Real Estates liabilities be? 11. Use the two steps above to arrive at an alternate estimate of the market value of GE Capital Real Estates equity. How does this compare to your earlier estimate from step 8 using comparables? REFERENCES

Table 1: Stock Data for December 31, 2014 BPY CUZ SUI VNO WRE WPC Stock Price $22.87 $11.42 $60.46 $86.12 $27.66 $70.10 Total Common Shares Outstanding(Millions) 254.08 216.51 48.57 187.89 67.82 104.04

Table 2: Income Statements for the year ending December 31, 2014 (all values in millions of $) BPY CUZ SUI VNO WRE WPC Total Revenue 4,473.00 177.56 469.80 2,312.51 288.64 908.45 Cost of Revenue 76.96 189.14 953.61 103.70 192.80 Gross Profit 4,473.00 100.60 280.66 1,358.90 184.94 715.65 Operating Expenses 833.00 23.51 73.47 169.27 19.07 149.92 Non Recurring 4.78 0.84 18.44 5.71 57.53 Others 148.00 62.26 133.73 481.30 96.01 237.12 Operating Income or Loss 1,732.00 10.05 72.63 689.89 64.15 271.07 Income from 3,756.00 12.54 37.77 215.35 0.83 -14.23 EBIT 6,854.00 22.58 109.20 845.39 64.97 406.90 Interest Expense 1,258.00 20.98 76.98 412.76 59.79 178.12 Income Before Tax 5,596.00 1.60 32.22 432.63 5.19 228.78 Income Tax Expense 1,176.00 -0.02 0.22 9.28 0.12 17.61 Minority Interest 21,708.00 58.68 29.69 743.96 2.67 139.85 Net Income From Ops 5,786.00 12.89 28.51 423.35 5.07 211.17 Non-recurring Events 40.12 585.68 106.53 34.90 Net Income 4,420.00 52.00 28.51 864.85 111.64 239.83