Chapter 21 REA hw 2023

Mortgage REITs ______

can originate mortgage loans

A REIT sold a property after owning it for one year. This is an example of a(n):

prohibited transaction

Suppose tenant improvement costs averaged $9 per square foot of newly leased space for the preceding 4 years. The company is preparing for an IPO and spent $19 per square foot in the previous year. What does this suggest?

the company was attempting to boost occupancy rates and nominal rent levels to appear more attractive to investors

Select all that apply. Which of the following financial relationships must be understood when analyzing equity REITs?

the comparison of the prospective equity REIT with other equity REITs the judgment of investment performance and risk

Select all that apply. REITs:

the majority of REIT dividends are taxed as ordinary income may use an accelerated method of depreciation when determining taxable income

Select all that apply. Which of the following is/are true regarding the Gordon Dividend Discount Model?

the model assumes that the value of a stock is the present value of expected future dividends the model assumes a constant dividend growth rate

RMA provides for an excise tax of ____ percent on any transaction between a TRS and its affiliated REIT not negotiated as an arm's-length transaction. Multiple choice question.

100

NAREIT classifies ____ types of private REITs.

3

A REIT is required to use a year asset life when determining income available for dividends. Enter your answer numerically.

40

At least percent of the value of a REIT's assets must consist of real estate assets, cash and government securities. Type your answer in numeric form.

75

Which of the following is not a property type NAREIT divides equity REITS into?

Agricultural

When using the Income (FFO) Model, the it is most common to use _____ to estimate income for valuation.

FFO

____ is used by analysts and investors as a measure of the cash flow available to the REIT for distributions to shareholders.

FFO

True or false: Capital gains from the sale of property must be distributed as a dividend to shareholders.

False

True or false: One of the benefits of investing in equity REITs is that there is no potential for conflicts of interest. True false question.

False

True or false: REITS must outsource management functions and sales to third parties.

False

FFO stands for:

Funds from Operations

Which of the following is not classified by NAREIT as a type of private REIT?

REITs targeted to large collections of small investors

Which of the following acts contain provisions designed to allow REITs to compete more effectively with other owners of commercial real estate?

RMA

refers to remodeling of space to meet changing tenant needs.

Redevelopment

Consider the following situation. A retail tenant signs a 10 year lease. Rent will be $10 in years 1 through 3, $12 in years 4 through 6 and $14 in years 7 through 10. Assume revenue recognition is based on straight-line reporting. Which of the following are issues that arise due to the use of straight-line reporting? Select all that apply.

The FFO estimates will be lower than the actual revenues in years 7 through 10 The first year's rent will be overstated The last year's rent will be understated

Which of the following is true regarding equity REITs? Select all that apply.

They provide investors with opportunities to invest funds in a diversified portfolio of real estate They provide more liquidity than if a property were acquired outright. They provide investors with opportunities to own equity shares that trade on organized exchanges

True or false: It is possible for the IRS to impose monetary penalties in lieu of loss of REIT status for certain violations.

True

True or false: REITS may receive income through provision of services to unrelated third parties.

True

Taxable REIT subsidiaries help ______.

a REIT not jeopardize its tax status

Investors should be aware of any fee based on other sources of income that a REIT reports because:

a large portion of these fees may be short-term

nvestors should be aware of any fee based on other sources of income that a REIT reports because:

a large portion of these fees may be short-term

When a REIT is trading ______ NAV, it is more likely to find attractive spreads than when it is trading _____ NAV.

above, below

Purchasing properties with cash at positive spreads and swapping shares in the REIT for interests in properties are examples of growing income through .

acquisitions

The business cycle ______

affects REITs

the straight lining of rents can distort the financial analysis of ______.

apartment REITs

Select all that apply. REITs:

are pass-through entities were created by the IRS generally pay little or no federal income tax can deduct distributions to shareholders when calculating taxable income distribute all of its taxable earnings and capital gains

The Gordon dividend discount model _______.

assumes a constant dividend growth rate

The average of the capitalization rates that would be used for individual properties in a portfolio if the properties were being valued separately is known as the:

blended capitalization rate

Mortgage REITs ______.

can originate mortgage loans

REITs allow investors to build _______

diversified portfolios in real estate

The dominant REIT today, by both number and market capitalization figures, is the:

equity trust REIT

True or false: Risk would be lower for a speculative development than with a build-to-suit development.

false

True or false: Upon expiration of a ground lease, the landowner has rights to the land improvements, but not structures or buildings on the land.

false

Which of the following methods allows a REIT to grow income through a variety of accounting treatments and use of leverage to magnify funds from operations?

financial engineering

If an entity fails to qualify as a REIT, the entity cannot make a new election ot be taxed as a REIT until years after the termination date. Enter your answer numerically.

five

If a REIT owns buildings subject to a ground lease owned by another party they are using the equivalence of leverage if the ground-lease payments are

fixed

REITs have very little _____ cash flow.

free

The amount of leased space is ______.

greater than the occupied space

In regards to REITs, at least 95 percent of the entity's _____ income must be derived from dividends, interest, rents or gains from the sale of certain assets.

gross

Risk is generally _____ in development of properties than it is in redevelopment or acquisition.

higher

Select all that apply. Which of the following are issues/concerns that investors should be aware of when investing in mortgage REITs?

income streams can be very volatile conflicts of interest exist when affiliates of mortgage REITS are also originators of mortgage loans

Deferred leasing costs may be overlooked by investors because:

investors typically measure profitability according to funds from operations

A self-advised REIT means that it ________.

is internally managed

Realty was the first significant REIT initial public offering designed to be internally managed and advised.

kimco

Mortgage REITs are ______ banks.

less regulated compared to

Additional risk to investments in unlisted REITs exists because of ______ provisions that may force the company to liquidate at a very disadvantageous point in time.

list or liquidate

Lease rollover risk is greatest for REITs that own ______

malls

Cash available for distribution provides a _____ conservative estimate of the potential stream of income available for dividend purposes.

more

It is ______ to run a REIT when compared to a private company.

more expensive

Which of the following type of REIT is essentially a creditor?

mortgage trust

Ground leases tend to be leases.

net

The market value of all of a company's assets after subtracting all its liabilities and obligations is referred to as:

net asset value

Income before interest or depreciation deductions is referred to as:

net income from operations

A _____ REIT reinvests any sale and financing proceeds in new or existing properties.

nonfinite life

space quantifies the space for which tenants are now paying rent while space includes all space for which leases are signed.

occupied, leased

It is possible for a REIT to enter into an agreement with a joint venture. When they do this, they often provide which of the following?

property and asset management services

REITs that are not listed on an exchange or traded over-the-counter are called:

public nonlisted REITs

REITs can grow income in an existing portfolio in which of the following ways? Select all that apply.

raising rents renting more space

All of the following are ways in which REITs can grow income and increase funds from operations except:

reductions in dividend payouts

It is important for investors to examine expected lease rollovers because:

renewal rent options could be set far below prevailing rents at the time of lease expiration

Which of the following are problems with using sales per square foot based on mall store tenants that reported 12 months of sales for the operating period? Select all that apply.

seasonal kiosk sales are excluded only tenants that survived will be included the measure may suffer from tenant survivorship bias

Net Asset Value is an indication of:

shareholders' equity

Select all that apply. In order to pass the safe harbor tests:

shares in the REIT must be fully transferable the REIT must be managed by a board of directors or trustees

Which type of debt is favorable in the near term, but exposes REITs to significantly greater risk?

short-term floating rate

The Sarbanes-Oxley law of 2002 had what affect on REITs? Select all that apply.

smaller REITs face a disproportionate burden in meeting requirements some smaller REITs were taken private due to the cost of compliance

When a REIT takes the risk of collected rents from the building owner and pays a lower payment to the landowner it is know as:

spread investing

Select all that apply. REITs can hedge risk associated with the use of short-term floating rate debt through the use of:

swaps interest rate caps

Select all that apply. REITs:

tend to be pulled in the direction of the rest of the market provide some diversification benefits are not highly correlated with the overall market

Estimating income then multiplying it by an appropriate multiple of income or price-to-earnings ratio is used in which of the following valuation models?

the Income (FFO) Multiple

The difference between the total current value of real estate and other assets owned by a REIT and the total debt and liabilities owed by the REIT is used in which valuation method?

the Net Asset Value

One of the challenges with analyzing retail REITs is that:

there is no standard way to measure retail sales per square foot of a small store

Mortgage REITs differ from equity REITs in that:

they do not own the real property

Investors should pay attention to any notes to FFO estimates that include "signed leases scheduled to commence" because:

this may indicate that the REIT is including the effect of leases not taking effect until a future date

In which of the following ways can individuals become investors in REITs?

through exchange-traded funds through the over-the-counter market through major stock exchanges through mutual funds through closed-end funds

True or false: Leasing commissions are included in depreciation and amortization expense.

true

A more inclusive definition of sales per square foot may tend to the long-term sales potential of a mall.

understate