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MODULE 11

MODULE 11. Sole Ownership. Private Partnership. Public Partnership. C-Corp. S-Corp. REIT. Comparative Analysis of Real Estate Ownership. Attribute Personal liability Tax Treatments Double Pass-through Liquidity Access to Equity Minimum Investment

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MODULE 11

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  1. MODULE 11

  2. Sole Ownership Private Partnership Public Partnership C-Corp S-Corp REIT Comparative Analysis of Real Estate Ownership Attribute Personal liability Tax Treatments Double Pass-through Liquidity Access to Equity Minimum Investment Required Scale of Acquisition Gov’t Restrictions on Financial Decision Participation in Management

  3. Fundamentals of Analysis for REIT’s Origins & Basics • What Are REIT’s • FFO And Profitability • How Do REIT’s Grow

  4. UPREIT’s And OP Units

  5. FFO Industry Standard For Measurement • Income & FFO Calculation Revenue Operating Expenses G & A $100 $35 $5 NOI Depreciation Interest $60 $20 $20 Net Income $20 FFO Calculation Net Income plus Depreciation $20 $20 FFO $40

  6. FAD Impact - I REIT A REIT B FFO Shares Outstanding FFO / Share FFO Multiple Price / Share FFO CAPEXP FAD FAD / Share FAD Multiple (@ $20/share) $40 $20 $2.00 10x $20 $40 $10 $30 $1.50 13.3x $40 $20 $2.00 10x $20 $40 $5 $35 $1.75 11.4x

  7. FAO Impact - II REIT C REIT D Revenue OE G & A NOI Depreciation Interest Net Income $100 $35 $5 $60 $15 $20 $25 $100 $40 $5 $55 $15 $20 $20 FFO Computation Net Income Plus R.E. Depreciation FFO Shares Outstanding FFO / Share FFO Multiple Price / Share $25 $15 $40 20 $2.00 10x $20 $20 $15 $35 20 $1.75 10x $17.50

  8. FAD Effect - II REIT C REIT D $20 $40 $5 $35 $1.75 $11.4x $17.50 $35 0 $35 $1.75 10.0x Price Per Share FFO CAP EXP FAD FAD / Share FAD Multiple

  9. FAD Impact - III ($ Millions) REIT E Net Income Plus Depreciation FFO less CAP EXP less Straight line Rent FAD $20 $20 $40 $5 $10 $25

  10. Conflicts Of Interests In The Structuring Of REITs • Successful REIT’s: Aligned Interests, Better Management, & More Liquidity • Corporate Goverance & Conflict Of Interest • Sources of Conflict of Interest

  11. Matrix Classification Of Potential Conflicts Of Interest Offering Formation Investment Management Property Management Conflict Item Transaction Activity Allegience X Sponsor Control X X X Outside Pacting X Over - Composition X X Resource Allocation X X Competition Affiliates X X Tie - In Business X X Captivity X Self - Dealing X X X Tax Timing X X Expense Reference X X X Malignancy X X

  12. Tax Driven Motives And UPREIT Structure • Transaction Bias And Recognition Of Built - In Gain • Reluctance To Pay Down Debt • The Advisor - Affiliate Structure And A Multitude Of Caveats For Investors

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