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REIT PROBLEM
"Bonzer Fair Dinkum Capital Management" is an equity REIT which owns a number of properties operated as Australian-branded children's theme parks called "Wombat World". The REIT has been operating for six years now. Overall commercial real estate prices in the markets in which this REIT operates have been fairly flat / constant over that time period. The REIT has the following financial information in the current year:
Income statement ($m)
Net operating income (NOI) $30
Head office expenses and executive compensation ($6)
Depreciation ($20)
Loss on property sale ($5)
Mortgage interest ($15)
Net income ($16)
Balance sheet ($m)
Assets:
Commercial real estate $600
Depreciation ($120)
Cash $20
Liabilities and equity:
Mortgage debt (interest only mortgage) $300
Equity $200
Assume that the market capitalization of the REIT is $110m (i.e. this is the market value of the equity of the REIT based on its current stock price).
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