Chartered Financial Analyst Level 2
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37 An analyst gathers the following information about a REIT for the year just ended:
- FFO: $65,000
- Non-cash rent: $5,000
- Recurring capital expenditures: $10,000
- Weighted average number of common shares: 20,000
If the REIT's price-to-adjusted-FFO multiple is 12x, the forecast REIT share price is closest to:
Exam-Like
A
$30.
B
$36.
C
$48.
Explanation:
Calculation Steps
Step 1: Calculate Adjusted FFO (AFFO)
- FFO = $65,000
- Subtract non-cash rent: 5,000 = $60,000
- Subtract recurring capital expenditures: 10,000 = $50,000
- AFFO = $50,000
Step 2: Calculate AFFO per share
- AFFO per share = 2.50 per share
Step 3: Calculate forecast share price
- Price-to-AFFO multiple = 12x
- Forecast share price = AFFO per share × Multiple = 30.00
However, let me verify this calculation:
Actually, let me recalculate:
- FFO = $65,000
- Non-cash rent adjustment: $5,000 (this should be added back, not subtracted)
- Recurring capital expenditures: $10,000 (this should be subtracted)
Correct calculation: AFFO = FFO + Non-cash rent - Recurring capital expenditures AFFO = 5,000 - 60,000
AFFO per share = 3.00 per share
Forecast share price = 36.00
Therefore, the correct answer is $36 (Option B).
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