REIT Business Case Study

Capital360's picture
Rank: Orangutan | 278

Hi all! Interviewing at a PERE shop that has just bought a small REIT c. $2Bil and are bringing it private. They've asked me to do a business case study on the direction it should take in regards to the portfolio of properties which varies from core, core+, VA and Opportunistic. I know the direction I want to take as I am familiar with the fundamentals of each assets market, but I have never done/seen anything like this before and was wondering has anyone any experience with this sort of thing that can offer advice on format/structure/presentation of the report? Any examples you could point me to would be awesome.

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Nov 23, 2019

That's an interesting case study. It sounds like you have the strategy and background info already in hand. That's the hard part. Probably doesn't matter how you format the information. The most challenging aspect might be knowing how deep of a dive is sufficient.

I'm guessing this isn't a case of taking the REIT private...but an actual private acquisition of the REIT. What would be the benefit of the REIT transitioning from public to private? The tax/legal structure for the REIT would remain the same and still require a high number of individual different shareholders.

This made me think of something: How is depreciation handled when a REIT is sold to a private entity? Assuming the transaction included the purchase all the REIT's holdings...the transaction occurred above the individual asset level.

I'm guessing that the title to each asset might transfer to a new entity...however that wouldn't constitute a sale of each individual asset. So I would think the new PE owner would need to stick with the prior depreciation schedule for each asset. Assuming that is correct...the new PE owner would get hammered if/when they dispose of any of the newly-acquired assets given their basis would be reduced by all of the prior years of depreciation enjoyed by the REIT. On the other hand...perhaps this was taken into account in the valuation of the REIT.

Nov 23, 2019
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