Case Study: Real Estate Investment Trust (REIT)

You have been presented with the following set of financial statements for the Lynn Associates Trust (LAT), a REIT that is about to make an initial stock offering to the public. This REIT specializes in the acquisition and management of regional shopping centers. Your firm, Blue Street Advisors (BSA), is an investment management company that is considering the purchase of LAT shares. You have been asked to prepare a financial analysis of the REIT.

Operating Statement Summary

Net Revenue $ 50,000,000

Less:

Operating expenses 20,000,000

Depreciation and amortization 11,000,000

General and administrative expenses 3,000,000

Management expense 1,500,000

Total Expenses 35,500,000

Income from operations 14,500,000

Less:

Interest Expense 3,200,000

Net Income (loss) $11,300,000

Balance Sheet Summary

Assets

Cash $ 25,750,000

Rents receivable 1,250,000

Properties @ cost 350,000,000

Less: Accumulated depreciation 225,000,000

Properties - net 125,000,000

Total net assets $152,000,000

Liabilities

Short term $ 6,000,000

Mortgage debt 40,000,000

Total 46,000,000

Shareholder equity $106,000,000

Total liabilities and equity $152,000,000

Analysis:

1. Develop a set of financial ratios that will provide Blue Street Advisors (BSA) with useful information in the evaluation and comparison of Lynn Associates Trust (LAT) with other REITs.

2. Should BSA purchase LAT shares?