Question
Congratulations! You have been hired as an Equity Research Analysts for one of the leading investment banks. Your boss asked you to analyze a REIT
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Congratulations! You have been hired as an Equity Research Analysts for one of the leading investment banks. Your boss asked you to analyze a REIT company that she heard might be a good investment opportunity. The properties underlying the REIT generate and NOI of $9.5 million (See income statement below) and the implied capitalization rate (caprate) for all assets is 5.5%. The growth in the market is 2.5% and the required return for the REIT stock is 8%. Your analysis shows that the current FFO multiple for other REITs of similar characteristics is 14.5. Assume that the all earnings are paid as dividend and that the REIT has $29 million in Debt.
Num Shares 1,500,000 REIT Income Statement Rent $19,000,000 - Operating Expenses ($9,500,000) Net Operating Income $9,500,000 - Depreciation ($2,500,000) +Gains on Sale of Property $3,000,000 Net Income $10,000,000 What is the price of the REIT stock using the Gordon Dividend Discount Model?
$36.44
$91.83
$124.24
$95.82
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