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 $$60/$share and there are $130$

million shares outstanding. Using the information below answer the following questions:

Expected next year total revenue: $$750$M

Expected next year total expenses $($including interest and depreciation$)$: $$380$M

Expected next year depreciation: $$90$M

Expected next year interest: $$70$M

Total debt: $$1\mathrm{.}5$B

Current office CAP in the US: $5\mathrm{.}0\%$ to $6\mathrm{.}0\%$ 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 $7\mathrm{.}5\%$ rate of return on an unlevered basis and expect the REIT to increase

NOI at an average rate of $2\mathrm{.}5\%?$ Should you buy shares of that REIT? Show your work!