Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Robust Properties is planning to go public by creating a REIT that will offer 1,840,000 million shares of stock. It is currently trying to develop

image text in transcribed

Robust Properties is planning to go public by creating a REIT that will offer 1,840,000 million shares of stock. It is currently trying to develop a pro forma set of financial statements. Robust is faced with a number of questions about its handling of some accounting and financial disclosure issues. Robust Properties I. Major Financial Information: a. Assets-properties (actual cost) b. Depreciable basis-buildings only c. Useful life d. Operating expenses e. Management expenses-third parties f. General and administrative expenses g. Mortgage at 8% interest only, 10 years n. Financing fees II. Lease Information: a. Average lease term b. Leasable space C. Base rents (year 1) d. Escalation factor-rents per year e. Lease commissions f. Tenant improvements $ 100,800,000 $ 80,640,000 40 years 38% of rents 5% of rents 3% of rents $ 30,080,000 $ 908,000 5 years 1,000,000 square feet $ 31 pounds per square feet 5% 4% of year 1 rent $ 14.00 pounds per square feet The management of Robust Properties has asked you to prepare preliminary pro forma financials for the next three years. Specifically, you should have (1) a beginning balance sheet, (2) operating statements for each of the next three years, and (3) all relevant financial ratios for year 1 results only. Robust will pay all financing fees, tenant improvements, and lease commissions upon commencing operations. It would like to pay a minimum dividend of $6.50 per share. In preparing your pro forma operating statements, Robust wants you to consider the effects of reporting in the following two ways: Required: a. What would EPS, FFO, and ROC be under both approaches? (Round your intermediate calculations and final answers to 2 decimal places.) Lease commissions Finance fees Tenant improvements Buildings Approach 1 Amortize, 5 years Amortize, 10 years Depreciate, 40 years Depreciate, 40 years Approach 2 Expense in year 1 Expense in year 1 Depreciate over 5-year lease term Depreciate, 40 years Approach 1 Approach 2 EPS FFO ROC Robust Properties is planning to go public by creating a REIT that will offer 1,840,000 million shares of stock. It is currently trying to develop a pro forma set of financial statements. Robust is faced with a number of questions about its handling of some accounting and financial disclosure issues. Robust Properties I. Major Financial Information: a. Assets-properties (actual cost) b. Depreciable basis-buildings only c. Useful life d. Operating expenses e. Management expenses-third parties f. General and administrative expenses g. Mortgage at 8% interest only, 10 years n. Financing fees II. Lease Information: a. Average lease term b. Leasable space C. Base rents (year 1) d. Escalation factor-rents per year e. Lease commissions f. Tenant improvements $ 100,800,000 $ 80,640,000 40 years 38% of rents 5% of rents 3% of rents $ 30,080,000 $ 908,000 5 years 1,000,000 square feet $ 31 pounds per square feet 5% 4% of year 1 rent $ 14.00 pounds per square feet The management of Robust Properties has asked you to prepare preliminary pro forma financials for the next three years. Specifically, you should have (1) a beginning balance sheet, (2) operating statements for each of the next three years, and (3) all relevant financial ratios for year 1 results only. Robust will pay all financing fees, tenant improvements, and lease commissions upon commencing operations. It would like to pay a minimum dividend of $6.50 per share. In preparing your pro forma operating statements, Robust wants you to consider the effects of reporting in the following two ways: Required: a. What would EPS, FFO, and ROC be under both approaches? (Round your intermediate calculations and final answers to 2 decimal places.) Lease commissions Finance fees Tenant improvements Buildings Approach 1 Amortize, 5 years Amortize, 10 years Depreciate, 40 years Depreciate, 40 years Approach 2 Expense in year 1 Expense in year 1 Depreciate over 5-year lease term Depreciate, 40 years Approach 1 Approach 2 EPS FFO ROC

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

International Finance Theory And Policy

Authors: Paul Krugman, Maurice Obstfeld, Marc Melitz

12th Global Edition

1292417005, 978-1292417004

More Books

Students also viewed these Finance questions

Question

1. Dont say, This is easy, I know you can do it.

Answered: 1 week ago