Deck 21: Real Estate Investment Trusts Reits

Question 1

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

Answer 1

Earnings before tax plus depreciation deductions

Question 2

Which of the following is not a type of REIT?

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

Answer 2

Partnership trust

Question 3

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

A) UPREITs and Mortgage
B) Mortgage,Equity,and Retail
C) Mortgage and Equity
D) Healthcare,Retail,and Office

Answer 3

Mortgage and Equity

Question 4

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 5

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 6

Considering the REIT in MC21-3,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 7

Recovery of Capital (or 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 8

Usually ground leases are for relatively short periods of time.

Question 9

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 10

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 11

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

Question 12

Mortgage REITs use debt financing to increase their capital bases.

Question 13

REITs are required to pay out 95 percent of their earnings as dividends.

Question 14

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 15

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 16

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

A) Hybrid REITs
B) Mortgage REITs
C) Equity REITs
D) None of the above REIT types are likely to own real property

Question 17

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 their individual tax reporting purposes
D) If a capital loss is realized,the loss can be passed through to individual investors

Question 18

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 19

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

Question 20

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 95% of a REIT's income must be distributed to shareholders
D) All of the above are REIT requirements

Question 21

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

Question 22

A REIT must have at least 200 shareholders.

Question 23

REITs must be passive investments with external advisors.

Question 24

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

Question 25

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