Robust Properties is planning to go public by creating a REIT that will offer 1 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 @ 8% interest only, 10 years h. 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 $ 100,000,000 $ 80,000,000 40 years 38% of rents 5% of rents 3% of rents $ 30,000,000 $ 900,000 5 years 1,000,000 square feet $ 15 pounds per square feet 5% 4% of year 1 rent $ 10 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 $4.00 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 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 @ 8% interest only, 10 years h. 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 $ 100,000,000 $ 80,000,000 40 years 38% of rents 5% of rents 3% of rents $ 30,000,000 $ 900,000 5 years 1,000,000 square feet $ 15 pounds per square feet 5% 4% of year 1 rent $ 10 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 $4.00 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
