How to analyze equity REIT's property level leveraged acquisition?
How would you go about analyzing this as an investor working for a REIT:

There is a single tenant retail property. The tenant is credit rated, but has a strange lease structure where if the tenant does not give notification a year in advance, the lease is automatically renewed for an additional 5 years. The tenant just renewed its lease, so the expiration date is now 8/2020. 

I am acquiring this property for $11MM. The total cost basis is $12MM (closing costs and reserves). I am getting a 10 year interest only loan for $7.5MM at a 4.4% interest rate. The lender is structuring in a cash flow sweep capped at $800K, just in case the single tenant does not renew its lease. I will finance the rest of the acquisition with equity (approx. $4.3MM).  loan matures 7/2025.

At mid loan term, I will have approx. $2.25MM of equity still in the deal. Since I am working for a REIT, I am incentivised by return on capital. Knowing this, what would you do in this situation? What else could I do besides use some of the equity I already took out of the property to pay for the debt service while I'm looking for another tenant? If I sell the property (I don't think I can because its a CMBS loan). I would have no return on capital (not what I want).

Could I calculate the WACC at the beginning of the investment and compare it to the WACC at mid loan term? If so how would I do that? (Assume Cost of equity is 13%). 

If I use the CF after debt service (profit) to take my equity out of the property, how would that be shown in the WACC calculation? The loan will stay the same, but my equity would just decrease? I thought the total capital is the value of the property.

How would you calculate the return on capital if you assume the tenant does renew its lease mid loan term?
[{"id": "cspdvok", "text": "Is this a homework problem or a real world problem?  \n\nYour equity isn't dynamic like you play it out to be.  It may be if you are evaluating options later on, but the money you take out is your return.  You don't get to have both a return and say you are returning capital so your equity is increased.  Derive your ROE based on DCF of both situations (if they renew or don't) with the appropriate pay outs (projected returns if they renew, and projected negative cash flow you have to feed while vacant).  Weight these based on how likely you think they both are.  \n\nIf the tenant does renew its lease your ROE is just whatever the return is given a renewal.  You pay so much to buy it etc then get so much cash flow back.  Discount that all back to now.\n\nYou can have some reinvestment thoughts here that would come into play based on the timing of the income streams, but that seems beyond the scope of the question.  \n\nLeast thats how I'd look at it.  I'm tired and have had a few beers though so I might be off.  \n\n--edit-- your loan may be assumable too or the holding company could be sold.  I'd not assume selling isn't a valid strategy unless you know that for sure.", "replies": [], "depth": 1}]