Robust Properties is planning to go public by creating a REIT that will offer $1,490,000$ million shares of stock. It is currently trying to develop a pro forma set of financial statements. Robust is faced with a number of questions about its handling of some accounting and financial disclosure issues.

Robust Properties

I. Major Financial Information:

a$.$ Assets$$properties $($actual cost$)$ $ $100,450,000$

b$.$ Depreciable basis$$buildings only $ $80,360,000$

c$.$ Useful life $40$ years

d$.$ Operating expenses $38\%$ of rents

e$.$ Management expenses$$third parties $5\%$ of rents

f$.$ General and administrative expenses $3\%$ of rents

g$.$ Mortgage at $8\%$ interest only, $10$ years $ $30,045,000$

h$.$ Financing fees $ $904,500$

II$.$ Lease Information:

a$.$ Average lease term $5$ years

b$.$ Leasable space $1,000,000$ square feet

c$.$ Base rents $($year $1)$ $ $24$ pounds per square feet

d$.$ Escalation factor$$rents per year $5\%$

e$.$ Lease commissions $4\%$ of year $1$ rent

f$.$ Tenant improvements $ $12\mathrm{.}25$ pounds per square feet

The management of Robust Properties has asked you to prepare preliminary pro forma financials for the next three years. Specifically, you should have $(1)$ a beginning balance sheet, $(2)$ operating statements for each of the next three years, and $(3)$ all relevant financial ratios for year $1$ results only. Robust will pay all financing fees, tenant improvements, and lease commissions upon commencing operations. It would like to pay a minimum dividend of $$5\mathrm{.}50$ per share.

In preparing your pro forma operating statements, Robust wants you to consider the effects of reporting in the following two ways:

Required:

a$.$ What would EPS, FFO, and ROC be under both approaches? $($Round your intermediate calculations and final answers to $2$ decimal places.$)$

Approach $1$ Approach $2$

Lease commissions Amortize, $5$ years Expense in year $1$

Finance fees Amortize, $10$ years Expense in year $1$

Tenant improvements Depreciate, $40$ years Depreciate over $5-$year lease term

Buildings Depreciate, $40$ years Depreciate, $40$ years