Problem 21-2 Robust Properties is planning to go public by creating a REIT that will offer 1,490,000 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 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 $ 100,450,000 $ 80,360,000 40 years 38% of rents 5% of rents 3% of rents $ 30,045,000 $ 904,500 5 years 1,000,000 square feet $ 24 pounds per square feet 5% 4% of year 1 rent $ 12.25 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 $5.50 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 Approach 1 Amortize, 5 years Amortize, 10 years Depreciate, 40 years Approach 2 Expense in year 1 Expense in year 1 Depreciate over 5-year lease term Depreciate, 40 years Buildings Depreciate, 40 years Approach 1 Approach 2 EPS FFO ROC
Problem 21-2 Robust Properties is planning to go public by creating a REIT that will offer 1,490,000 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 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 $ 100,450,000 $ 80,360,000 40 years 38% of rents 5% of rents 3% of rents $ 30,045,000 $ 904,500 5 years 1,000,000 square feet $ 24 pounds per square feet 5% 4% of year 1 rent $ 12.25 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 $5.50 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 Approach 1 Amortize, 5 years Amortize, 10 years Depreciate, 40 years Approach 2 Expense in year 1 Expense in year 1 Depreciate over 5-year lease term Depreciate, 40 years Buildings Depreciate, 40 years Approach 1 Approach 2 EPS FFO ROC
Chapter2: Financial Statements, Cash Flow, And Taxes
Section: Chapter Questions
Problem 15SP
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Transcribed Image Text:Problem 21-2
Robust Properties is planning to go public by creating a REIT that will offer 1,490,000 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
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
$ 100,450,000
$ 80,360,000
40 years
38% of rents
5% of rents
3% of rents
$ 30,045,000
$ 904,500
5 years
1,000,000 square feet
$ 24 pounds per square feet
5%
4% of year 1 rent
$ 12.25 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 $5.50 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
Approach 1
Amortize, 5 years
Amortize, 10 years
Depreciate, 40 years
Approach 2
Expense in year 1
Expense in year 1
Depreciate over 5-year lease term
Depreciate, 40 years
Buildings
Depreciate, 40 years
Approach 1 Approach 2
EPS
FFO
ROC
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