Problem $21-1$

You have been presented with the following set of financial statements for National Property Trust, a REIT that is about to make an initial stock offering to the public. This REIT specializes in the acquisition and management of warehouses. Your firm, Blue Street Advisors, is an investment management company that is considering the purchase of National Property Trust shares. You have been asked to prepare a financial analysis of the REIT.

National Property Trust

Panel A$.$ Operating Statement Summary

Net revenue $ $111,000,000$

Less:

Operating expenses $44,400,000$

Depreciation and amortization $33,000,000$

General and administrative expenses $7,100,000$

Management expense $4,100,000$

Income from operations $22,400,000$

Less:

Interest expense$*6,400,000$

Net income $($loss$)$ $ $16,000,000$

$*$At $8\%$ interest only.

Panel B$.$ Balance Sheet Summary

Assets

Cash $ $52,600,000$

Rents receivable $3,600,000$

Properties @ cost $810,000,000$

Less: Accumulated depreciation $461,000,000$

Properties$$net $349,000,000$

Total net assets $ $405,200,000$

Liabilities

Short term $ $102,200,000$

Mortgage debt$*80,000,000$

Total $182,200,000$

Shareholder equity$223,000,000$

Total liabilities and equity $ $405,200,000$

$*$At $8\%$ interest only.

$10,000,000$ shares outstanding.

Required:

a$.$ Develop a set of financial ratios that will provide Blue Street Advisors with useful information in the evaluation and comparison of National Property Trust with other REITs.

b$.$ Your research also indicates that the shares of comparable REITs specializing in warehouse acquisitions in the same regions are selling at dividend yields in the range of $8$ percent. Price multiples for these REITs are about $12$ current FFO. What price range does this suggest for National shares?

c$.$ What is the NAV for National Property Trust assuming that a blended capitalization rate of $10$ percent would be applicable for the properties owned by Blue Street Advisors?