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Minority Interest Discount
To determine an appropriate minority interest discount to
apply to his asset-based value, Mr. Keath used a list of 13
publicly traded real estate investment trusts (REIT’s) culled
from Realty Stock Review. As with Mr. Egan’s approach, the
underlying premise for using publicly traded companies was that
each trade of shares of stock involved a minority interest, and
therefore the prices at which the shares were traded reflected
any inherent minority interest discount. He computed the average
by which market value of equity plus debt (which he termed total
capital) exceeded net asset value plus debt. By Mr. Keath’s
computation, the average REIT reflected a premium for a minority
interest rather than a discount: On average, the market value of
total capital exceeded net asset value plus debt by 1.5 percent.
The next step in Mr. Keath’s analysis was to make
adjustments to this figure of 1.5 percent to account for the
differences between JFI and the average REIT. His method was to
compile a list of 12 characteristics of REIT’s, and then to
assess whether JFI was higher or lower than the average with
respect to each characteristic. The premise underlying Mr.
Keath’s method was that 95 percent of all REIT’s would fall
within two standard deviations of the average REIT, and therefore
that there was a 95-percent chance that each of the 12
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