Question
1. Aztec REIT reports a net operating income of $15.50 and a GAAP Net Income of $10.00 per share. The REIT also reports a depreciation
1. Aztec REIT reports a net operating income of $15.50 and a GAAP Net Income of $10.00 per share. The REIT also reports a depreciation expense of $2.75 per share. Aztec did not have any gains from the sale of real estate. Its properties are mainly apartments. Apartments are currently selling for a 6.0 percent blended cap rate. Aztec has 1 million shares outstanding, and its balance sheets shows liabilities of $65 million. Comparable REITs have FFO multiples of 15. Aztec is expected to pay a dividend during the next fiscal year of $8.75 per share and to increase those dividends at about 3.25 percent per year in the future. Assume investors in REITs like Aztec require a return of 7.8 percent.
a. What is the FFO and value per share based on the FFO multiple?
b. What value per share is indicated using a dividend discount model?
c. What is the value per share implied by the net asset value of the properties?
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