Question
7. (8 points, 4+4) Consider a REIT that holds high quality office buildings in some of the best locations in the US. The REIT is
7. (8 points, 4+4) 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 Total 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? Show your work!
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started