A REIT with 100 shares outstanding earns $1,000 in rent and incurs operating expenses of $400.In addition,the REIT owns property with an historic cost of $6,000 and depreciates it over a 15 year period using straight-line depreciation.What are the funds from operations per share and the earnings per share for this REIT?

Question

Quizplus · Accepted Answer

Funds from Operations (FFO) per share calculation: FFO adds back depreciation to net income since it's a non-cash expense. Net income is calculated as rent minus operating expenses ($1,000 - $400 = $600). Depreciation is the historic cost divided by the depreciation period ($6,000 / 15 = $400). So, FFO = $600 + $400 = $1,000. FFO per share = $1,000 / 100 shares = $10 per share, which is not an option provided, indicating a mistake in my calculation. Correcting this: FFO should be correctly calculated as follows: Rent ($1,000) - Operating Expenses ($400) + Depreciation ($400) = $1,000. Therefore, FFO per share = $1,000 / 100 shares = $10 per share, which still does not match any of the options, indicating a further mistake in my explanation. Let's correct the approach:Correct Calculation:- Net Income = Rent - Operating Expenses - Depreciation = $1,000 - $400 - ($6,000 / 15) = $600 - $400 = $200.- Earnings Per Share (EPS) = Net Income / Number of Shares = $200 / 100 = $2.- Funds from Operations (FFO) = Net Income + Depreciation = $200 + $400 = $600.- FFO Per Share = FFO / Number of Shares = $600 / 100 = $6.Therefore, the correct answer is $6 for FFO per share and $2 for earnings per share, which matches option C.

A REIT with 100 Shares Outstanding Earns $1,000 in Rent