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unimproved land that could be used for a variety of purposes, Dr.
Bajaj’s sample includes REITs specializing in a broad array of
real estate investments, including office, residential, and
retail properties. Given the size of the sample, we believe that
any dissimilarities in the assets and activities of particular
REITs in the sample as compared to those of MIL’s real estate
partnerships are tolerable.28
(2) Determining the Discount Factor
Because REITs offer investors the opportunity to invest in
an illiquid asset (i.e., the underlying real estate) in liquid
form (i.e., the REIT shares), investors in REITs are willing to
pay a liquidity premium (relative to NAV) to invest in REIT
shares. According to Dr. Bajaj, that does not imply that a
minority discount is nonexistent; it only means that the
difference between price and NAV for a REIT may have two
components, one positive (the liquidity premium) and one negative
(the minority discount). From his sample data, Dr. Bajaj
calculated a median price-to-NAV premium of 3.7 percent. To be
conservative and to reflect MIL’s distribution policy, Dr. Bajaj
looked below the median, to the 25th percentile, and began with a
price-to-NAV discount of 1.3 percent (an adjustment to NAV of
minus (-) 1.3 percent). Since Dr. Bajaj believes that that
28 We note that, while Mr. Frazier questions the
composition of Dr. Bajaj’s sample of REITs, he offers no specific
suggestions for modifying the sample.
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