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 $65/share and there are 110 million shares outstanding. Using the information below answer the following questions:

Expected next year total revenue: $680M

Expected next year total expenses (including interest and depreciation): $350M

Expected next year depreciation: $80M

Expected next year interest: $60M Total debt: $2.0B

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 an 8.0% rate of return on an unlevered basis and expect the REIT to increase NOI at an average rate of 2.25%? Should you buy shares of that REIT? Show your work!

A1 IS 65.00 per share Current share price 3 Number of shares outstanding 110 million 680 Million Expected next year revenue Expected next year total expenses 350 Million (including interest and depreciation) 6 80 Million Expected next year depreciation S 60 Million Expected next year interest payment IS 2 Billion Total Debt Current range of CAP for office space in the 4.50% to US (depending on quality and location) 10 Required unlevered rate of return 8.00% 11I Expectet NOI graowth rate 2.25% 13 a. Answer: 15 Show your work: 19 b Answer: 21 23 Show your work: 25