Deck 21: Real Estate Investment Trusts Reits

Question 1

$$\begin{array} { l r } \text { Net revenue } & \$ 20,000,000 \\\text { Less: } & \\\text { Operating expenses } & 9,800,000 \\\text { Depreciation and } & \\\text { amartization } & \underline{4,400,000} \\\text { Incame fram aperations } & 5,800,000 \\\text { Less: } & \\\text { Interest expense } & \underline{1,280,000}\\\text { Net incame } &\$ \underline{4,520,000}\\\end{array}$$

-Using the information from the question above, what would the net asset value NAV) of the REIT be?

A) $60.15
B) $71.89
C) $153.85
D) $160.00
E) $190.00

Answer 1

$153.85

Question 2

$$\begin{array} { l r } \text { Net revenue } & \$ 20,000,000 \\\text { Less: } & \\\text { Operating expenses } & 9,800,000 \\\text { Depreciation and } & \\\text { amartization } & \underline{4,400,000} \\\text { Incame fram aperations } & 5,800,000 \\\text { Less: } & \\\text { Interest expense } & \underline{1,280,000}\\\text { Net incame } &\$ \underline{4,520,000}\\\end{array}$$

-Which of the following regarding private unlisted) REITs is TRUE?

A) Unlisted REITs are less expensive than listed REITs
B) Unlisted REITs are less liquid than listed REITS
C) Unlisted REITs are more subject to short-term market price volatility than listed REITS
D) "List or liquidate" provisions in unlisted REITs make such REITs less risky than listed REITS

Answer 2

Unlisted REITs are less liquid than listed REITS

Question 3

The U.S. is the only country that allows REITs or similar investments).

Answer 3

False

Question 4

$$\begin{array} { l r } \text { Net revenue } & \$ 20,000,000 \\\text { Less: } & \\\text { Operating expenses } & 9,800,000 \\\text { Depreciation and } & \\\text { amartization } & \underline{4,400,000} \\\text { Incame fram aperations } & 5,800,000 \\\text { Less: } & \\\text { Interest expense } & \underline{1,280,000}\\\text { Net incame } &\$ \underline{4,520,000}\\\end{array}$$

-Consider the financial statements for a REIT, given above. Price multiples for comparable REITs are about 10 times current funds from operation FFO). What price does this suggest for the REIT's shares if 1,000,000 shares are issued?

A) $4.52 per share
B) $45.20 per share
C) $8.92 per share
D) $89.20 per share

Question 5

REITs must be passive investments with external advisors.

Question 6

$$\begin{array} { l r } \text { Net revenue } & \$ 20,000,000 \\\text { Less: } & \\\text { Operating expenses } & 9,800,000 \\\text { Depreciation and } & \\\text { amartization } & \underline{4,400,000} \\\text { Incame fram aperations } & 5,800,000 \\\text { Less: } & \\\text { Interest expense } & \underline{1,280,000}\\\text { Net incame } &\$ \underline{4,520,000}\\\end{array}$$

-Which of the following is NOT a type of REIT?

A) Mortgage trust
B) Equity trust
C) Hybrid trust
D) Partnership trust

Question 7

Because REITs are corporations, they are subject to double taxation.

Question 8

Mortgage REITs use debt financing to increase their capital bases.

Question 9

Funds from operation FFO), is calculated by adding back depreciation and amortization and other non-cash deductions to earnings.

Question 10

REITs can sometimes capitalize rather than lease certain expenditures to increase FFO.

Question 11

$$\begin{array} { l r } \text { Net revenue } & \$ 20,000,000 \\\text { Less: } & \\\text { Operating expenses } & 9,800,000 \\\text { Depreciation and } & \\\text { amartization } & \underline{4,400,000} \\\text { Incame fram aperations } & 5,800,000 \\\text { Less: } & \\\text { Interest expense } & \underline{1,280,000}\\\text { Net incame } &\$ \underline{4,520,000}\\\end{array}$$

-Currently, MOST REITs are:

A) Equity trusts
B) Mortgage trusts
C) Hybrid trusts
D) Partnership trusts

Question 12

$$\begin{array} { l r } \text { Net revenue } & \$ 20,000,000 \\\text { Less: } & \\\text { Operating expenses } & 9,800,000 \\\text { Depreciation and } & \\\text { amartization } & \underline{4,400,000} \\\text { Incame fram aperations } & 5,800,000 \\\text { Less: } & \\\text { Interest expense } & \underline{1,280,000}\\\text { Net incame } &\$ \underline{4,520,000}\\\end{array}$$

-A REIT has an NOI of $15 as share and currently pays a dividend of $10 a share. The dividend is projected to increase by 4 percent by next year and continue to increase by 4 percent per year thereafter. Assuming that the blended cap rate is 9.75 percent and the required rate of return is 10.5 percent, what value would the Gordon Dividend Discount Model provide?

A) $60.15
B) $71.89
C) $153.85
D) $160.00
E) $190.00

Question 13

A mortgage REIT is a REIT that primarily invests in mortgages rather than equity ownership.

Question 14

At least 95 percent of the value of a REIT's assets must consist of real estate assets, cash, and government securities.

Question 15

The difference between EPS earnings per share) and FFO funds from operations) is the interest deduction.

Question 16

A portion of a REIT's dividend may be a non-taxable return of capital.

Question 17

Usually ground leases are for relatively short periods of time.

Question 18

Real estate assets, cash, and government securities represent at least 75% of REIT assets.

Question 19

A REIT must have at least 200 shareholders.

Question 20

REITs are required to pay out 90 percent of their earnings as dividends.

Question 21

Which of the following REIT types is NOT likely to own real property?

A) Hybrid REIT
B) Mortgage REIT
C) Equity REIT
D) All of the above

Question 22

The funds from operations FFO) for a REIT is roughly equal to:

A) NOI less interest deductions
B) Earnings before tax plus depreciation deductions
C) NOI plus interest deductions
D) Earnings per share plus capital gains

Question 23

The difference between EPS earnings per share and (FFO funds from operations) is:

A) Irrelevant
B) Determined by growth of the company
C) Due to depreciation and amortization
D) Due to the number of shares outstanding

Question 24

Recovery of capital ROC) results in:

A) An increase in the dividend available to the investor
B) An increase in the value of the stock
C) A reduction in the cost basis of acquired stock
D) A reduction in losses on the stock

Question 25

$$\begin{array} { l r } \text { Net revenue } & \$ 20,000,000 \\\text { Less: } & \\\text { Operating expenses } & 9,800,000 \\\text { Depreciation and } & \\\text { amartization } & \underline{4,400,000} \\\text { Incame fram aperations } & 5,800,000 \\\text { Less: } & \\\text { Interest expense } & \underline{1,280,000}\\\text { Net incame } &\$ \underline{4,520,000}\\\end{array}$$

-A hybrid REIT is comprised of what primary classifications of REITs?

A) UPREITs, mortgage
B) Mortgage, equity, retail
C) Mortgage, equity
D) Healthcare, retail, office

Question 26

Once an entity has been terminated as a REIT, the entity cannot make a new election to be taxed as a REIT until __ years after the termination.

A) 2
B) 3
C) 4
D) 5

Question 27

A REIT with 100 shares outstanding earns $1,000 in rent and incurs operating expenses of $400. In addition, the REIT owns property with an historic cost of $6,000 and depreciates it over a15 year period using straight-line depreciation. What are the funds from operations per share and the earnings per share for this REIT?

A) $4 and $3, respectively
B) $4 and $2, respectively
C) $6 and $2, respectively
D) $6 and $3, respectively

Question 28

REIT dividends are considered ________ income and thus do not qualify as passive income to offset passive losses.

A) Portfolio
B) Operating
C) Trading
D) Outside professional

Question 29

The early growth of the REIT industry in the 1970s was mainly attributed to which of the following?

A) Popularity of mortgage trusts
B) Deregulation of the industry
C) Declined performance of other investments
D) Increased value of real property throughout the country

Question 30

An investor pays $63.00 per share for stock in a given REIT. The REIT declares a dividend of $4.00 per share and has an EPS of $2.37. Considering the recovery of capital ROC), what is the new cost basis of the stock acquired by the investor?

A) $60.63
B) $61.37
C) $63.00
D) $64.63

Question 31

Which of the following REIT types is organized to acquire the specific property or properties described in its prospectus?

A) A property trust
B) A mixed trust
C) A purchasing trust
D) An exchange trust

Question 32

Considering the REIT in the question above, at the very least what dividend payment must it make to maintain its tax exempt status?

A) $1.90
B) $2.85
C) $3.80
D) $5.70

Question 33

Which of the following is likely to occur upon the sale of a REIT-owned property?

A) If a capital gain is realized, the REIT can retain the gain for future investment and be taxed at the appropriate corporate capital gains tax rate
B) If a capital gain is realized, the REIT can retain the gain for future investment and be taxed at the shareholder's capital gains tax rate
C) If a capital gain is realized, the REIT can distribute the gain as a dividend to shareholders who will realize it as dividend income for individual tax reporting purposes
D) If a capital loss is realized, the loss can be passed through to individual investors

Question 34

Which of the following is NOT a requirement of REITs?

A) A REIT must have at least 100 stockholders
B) Not more than 50% of a REIT's shares can be owned by five or fewer shareholders
C) At least 90% of a REIT's income must be distributed to shareholders
D) All of the above are REIT requirements