- 41 -
c. Real Estate Partnerships25
(1) The Appropriate Comparables
In contrast to their opinions regarding MIL’s equity and
bond portfolios, Dr. Bajaj and Mr. Frazier sharply disagree on
the general type of publicly traded entity from which to
extrapolate the minority interest discount factor for MIL’s real
estate partnership interests. Dr. Bajaj argues that the discount
factor should be based on data pertaining to real estate
investment trusts (REITs).26 Mr. Frazier, on the other hand,
excludes REITs from consideration “since they are primarily
priced on a current yield basis because REITs are required by law
to annually pay out a large portion of earnings to shareholders.”
That justification overlooks the fact that the investment funds
Mr. Frazier analyzes in determining the minority interest
discount factors for MIL’s equity and bond portfolios are also
required to distribute substantially all of their income each
year in order to maintain their tax-favored status as regulated
investment companies (RICs). Compare sec. 852(a)(1) (income
distribution requirement for RICs) with sec. 857(a)(1) (income
distribution requirement for REITs). In the absence of any
25 Dr. Bajaj limits his real estate analysis to MIL’s real
estate partnership interests. We address the minority interest
discount factor for MIL’s direct real estate holdings infra in
sec. V.C.2.d.
26 A real estate investment trust is a tax-favored vehicle
through which numerous investors can pool their resources to
invest in real estate. See secs. 856-859.
Page: Previous 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 NextLast modified: May 25, 2011