The WACC of City Office REIT Inc (CIO) is 8.6%.
Range | Selected | |
Cost of equity | 6.3% - 8.2% | 7.25% |
Tax rate | 26.2% - 27.0% | 26.6% |
Cost of debt | 4.1% - 20.9% | 12.5% |
WACC | 3.9% - 13.4% | 8.6% |
Category | Low | High |
Long-term bond rate | 3.9% | 4.4% |
Equity market risk premium | 4.6% | 5.6% |
Adjusted beta | 0.53 | 0.6 |
Additional risk adjustments | 0.0% | 0.5% |
Cost of equity | 6.3% | 8.2% |
Tax rate | 26.2% | 27.0% |
Debt/Equity ratio | 2.87 | 2.87 |
Cost of debt | 4.1% | 20.9% |
After-tax WACC | 3.9% | 13.4% |
Selected WACC | 8.6% | |
Debt/Equity | Unlevered | |||
Peers | Company Name | ratio | Beta | beta |
CIO | City Office REIT Inc | 2.87 | 0.38 | 0.12 |
CMCT | CIM Commercial Trust Corp | 75.94 | 0 | 0 |
D.UN.TO | Dream Office Real Estate Investment Trust | 4.84 | 1.24 | 0.27 |
DEA | Easterly Government Properties Inc | 1.57 | 0.23 | 0.11 |
FSP | Franklin Street Properties Corp | 1.34 | 0.78 | 0.39 |
HPP | Hudson Pacific Properties Inc | 4.61 | 0.94 | 0.22 |
INO.UN.TO | Inovalis Real Estate Investment Trust | 7.29 | 0.91 | 0.14 |
OPI | Office Properties Income Trust | 127.83 | 0.76 | 0.01 |
PSTL | Postal Realty Trust Inc | 0.69 | 0.12 | 0.08 |
SOT.UN.TO | Slate Office REIT | 29.33 | 0.73 | 0.03 |
Low | High | |
Unlevered beta | 0.1 | 0.13 |
Relevered beta | 0.3 | 0.4 |
Adjusted relevered beta | 0.53 | 0.6 |
The Cost of Equity reflects the return a company needs to deliver to shareholders to justify the risk of investing in its shares. It’s computed using the Capital Asset Pricing Model (CAPM), which blends the risk-free rate, the stock’s beta, and the market risk premium.
This method evaluates the stock’s risk compared to a safe investment and the market’s overall volatility.
Here’s how we figure out the cost of equity for CIO:
cost_of_equity (7.25%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.53) + risk_adjustments (0.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.