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explanation as to why the current distribution requirement should
disqualify REITs (but not RICs) from consideration in our
analysis, we are persuaded to evaluate the REIT data.
We are further persuaded to utilize the REIT data in light
of the alternative offered by Mr. Frazier. Mr. Frazier’s search
for “comparable” publicly traded real estate companies yielded a
sample of five companies, and he derives his range of discounts
from only three of those companies. While we have utilized small
samples in other valuation contexts, we have also recognized the
basic premise that “[a]s similarity to the company to be valued
decreases, the number of required comparables increases”. Estate
of Heck v. Commissioner, T.C. Memo. 2002-34. One of Mr.
Frazier’s three sample companies developed planned communities,
conducted farming operations, and owned royalty interests in more
than 200 oil and gas wells. Another owned and managed shopping
centers and malls and developed the master-planned community of
Columbia, Maryland. The assets and activities of those companies
are not sufficiently similar to those of MIL’s real estate
partnerships to justify the use of such a small sample.27
In contrast, Dr. Bajaj’s REIT sample consists of 62
companies. In recognition of the fact that two of the real
estate limited partnerships in which MIL was a partner owned
27 Cf. Estate of Desmond v. Commissioner, T.C. Memo.
1999-76 (approving the use of the market approach for valuing an
operating business based on two guideline companies in the same
-–as opposed to similar-–line of business).
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