Ch.17
Given the following information, calculate the funds from operation (FFO): net income: $1,200,000; gains/losses from infrequent and unusual events: $0; amortization of tenant improvements: $120,000; amortization of leasing expenses: $75,000; depreciation (real property): $2,675,000.
FFO = 1,200,000 +2,675,000 +75,000 +120,000 -0 = 4,070,000
Given the following information, calculate the price-FFO multiple for the following REIT: net income: $1,200,000; gains/losses from infrequent and unusual events: $0; amortization of tenant improvements: $120,000; amortization of leasing expenses: $75,000; depreciation (real property): $2,675,000; stock price: $40; market capitalization: $40,000,000.
FFO = 1,200,000 +2,675,000 +75,000 +120,000 -0 = 4,070,000 # of shares = market cap/share price = 40,000,000/40 = 1,000,000 FFO/share = 4,070,000/1,000,000 = 4.07 Price/FFO multiple = 40/4.07 = 9.83
Given the following information, calculate the funds from operation (FFO): net income: $44,245,000; gains/losses from infrequent and unusual events: $50,000; amortization of tenant improvements: $575,000; amortization of leasing expenses: $133,000; depreciation (real property): $30,906,000.
FFO = 44,245,000 +30,906,000 +133,000 +575,000 -50,000 = 75,809,000
If the per share stock price of a REIT is greater than its per share net asset value (NAV), the REIT is said to be selling at
a premium
The choice of ownership form for pooled equity investments depends heavily on federal tax considerations. Which of the following ownership structures suffers from the major disadvantage of double taxation?
c corporation
Since most real estate assets are depreciable, using accounting income to measure a REIT's cash flow may actually understate the funds that are available to distribute to investors as dividends. Therefore, REITs utilize a measure that adds back depreciation and amortization expenses, more commonly referred to as
funds from operations
In most pooled ownership forms, a single partner is empowered to act on behalf of the investors in terms of making property investment decisions. Based on your understanding of the different types of pooled ownership, which of the following structures would we expect this issue to be the least prevalent?
general partnership
The choice of ownership form for pooled equity investments can also depend on the desire to avoid personal liability. Which of the following ownership structures suffers from the major disadvantage of unlimited liability for all investors?
general partnership
In contrast to public markets, private markets are characterized by individually negotiated transactions that take place without the aid of a centralized market. Therefore, private markets will generally have
high transaction costs and low liquidity
Investors in commercial real estate can hold ownership positions either directly or indirectly. An entity that invests in real estate and sells claims on those investments to the ultimate investors is more commonly referred to as a(n)
intermediary
There are two major types of REITs: equity REITs and mortgage REITs. Each differs in terms of what they invest in. Which of the following choices best describes the investment focus of an equity REIT?
invests primarily in and operates commercial properties
In recent years, a number of pooled ownership structures have emerged that have changed the analysis of ownership form selection for many investors. Which of the following ownership structures is generally used for small, local investments that are marketed to accredited, but noninstitutional investors?
limited liability company
One measure of the importance of a publicly traded asset class in the U.S. economy can be calculated by multiplying the number of publicly traded shares by the current market price of the stock. The result of this calculation is more commonly referred to as
market capitalization
Which of the following measures, equal to the estimated total market value of a REITs underlying assets, allows investors to compare the value of a publicly traded security to the value of the properties that it holds in the private market?
net asset value
Real estate private equity funds can focus investment on anything from "Class A" real estate to redevelopment in the urban center. On the risk-return spectrum, which of the following private equity fund categories tends to have a heavier development component and often involves investment in riskier property types and locations?
opportunistic
When fund managers collect contributions from multiple sources and "commingle" them to purchase properties, it is referred to as the use of commingled real estate funds. Which of the following institutional investors utilize commingled real estate funds for approximately one-half of their investments in real estate?
pension funds
Most real estate investment trusts (REITs) are actively managed operating companies that typically focus their investments either by property type or geographic market. Which of the following commercial property types represents the largest proportion of REIT market value?
retail
Ownership forms for pooled equity investment can differ in terms of how the entity's cash flows are distributed to its investors. Which of the following ownership structures requires cash flows to be allocated to each shareholder in proportion to his or her ownership of the entity, thereby preventing special allocations to multiple classes of investors?
subchapter S corporation
A group of persons or legal entities who come together to carry out a particular activity are more commonly referred to as a
syndicate
Section 1031 of the Internal Revenue Code permits investors to defer some or all of the taxable gain that would ordinarily be due on the sale of a property if they exchange for like-kind property. In order to avoid income taxes, many investors attempted to make use of this tax code when disposing of commercial real estate assets. This led to the reemergence of which of the following forms of ownership in commercial real estate?
tenancy-in-common
