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 $ 101,000,000 Less: Operating expenses 40,400,000 Depreciation and amortization 23,000,000 General and administrative expenses 6,100,000 Management expense 3,100,000 Income from operations 28,400,000 Less: Interest expense* 6,400,000 Net income (loss) $ 22,000,000 At 8% interest only. Panel B. Balance Sheet Summary Assets Cash $ 51,600,000 Rents receivable 2,600,000 Properties @ cost 710,000,000 Less: Accumulated depreciation 451,000,000 Properties—net 259,000,000 Total net assets $ 313,200,000 Liabilities Short term $ 20,200,000 Mortgage debt 80,000,000 Total 100,200,000 Shareholder equity† 213,000,000 Total liabilities and equity $ 313,200,000 *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?

Financial Accounting

15th Edition

ISBN:9781337272124

Author:Carl Warren, James M. Reeve, Jonathan Duchac

Publisher:Carl Warren, James M. Reeve, Jonathan Duchac

Chapter15: Investments And Fair Value Accounting

Section: Chapter Questions

Problem 2CP

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Question

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	$ 101,000,000
Less:
Operating expenses	40,400,000
Depreciation and amortization	23,000,000
General and administrative expenses	6,100,000
Management expense	3,100,000
Income from operations	28,400,000
Less:
Interest expense*	6,400,000
Net income (loss)	$ 22,000,000

*At 8% interest only.

Panel B. Balance Sheet Summary
Assets
Cash	$ 51,600,000
Rents receivable	2,600,000
Properties @ cost	710,000,000
Less: Accumulated depreciation	451,000,000
Properties—net	259,000,000
Total net assets	$ 313,200,000
Liabilities
Short term	$ 20,200,000
Mortgage debt*	80,000,000
Total	100,200,000
Shareholder equity†	213,000,000
Total liabilities and equity	$ 313,200,000

*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?

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