Term
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Definition
| a real estate company or thrust that has elected to qualify under certain tax provisions to become a pass through entity that distributes to its shareholders substantially all of its earnings in addition to any capital gains generated. |
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Term
REITs pay taxes on their earnings
T/F x |
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Definition
| False...but the distributed earnings do represent dividend income to its shareholders and are taxed accordingly |
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Term
| Asset requirements of a REIT x |
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Definition
- 75% of assets must consist of real estate assets, cash, and government securities
- Not more than 5% of the value of the assets may consist of the securities of any one issuer if the securities are not includable under the 75% test
- A REIT may not hold more than 10% of the outstanding voting securities of any one issuer if those securities are not includable under the 75% test
- Not more than 20% of its assets can consist of stocks in taxable REIT subsidiaries
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Term
| Income Requirements of a REIT x |
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Definition
- At least 95% of the entity's gross income must be derived from dividends, interest, rents, or gains fro the sale of certain assets
- At least 75% of gross income must be derived from rents, interest on obligations secured by mortgages, gains from the sale of certain assets, or income attributable to investments in other REITs
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Term
| Distribution Requirements of a REIT |
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Definition
- Distributions to shareholders must equal or exceed the sum of 90% of REIT table income
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Term
| Stock and Ownership requirements of a REIT x |
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Definition
- Be taxable as a corporation
- Be managed by a board of directors or trustees
- Have shares that are fully transferable
- Shares in a REIT must be transferable and must be held by a minimum of 100 persons
- No more than 50% of REIT shares may be held by 5 or fewer individuals during the last half of the taxable year
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Term
| What was the main change that occurred from the 1986 tax reform? x |
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Definition
| REIT managers have the ability to internalize management/operations, creating a vertically integrated company |
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Term
| Dominant sponsors of REITs...pre and post 1986 |
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Definition
Pre: insurance company, commercial bank, mortgage banker
Post: real estate devlopers |
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Term
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Definition
| Umbrella partnership REIT: a REIT that owns a controlling interest in a limited partnership that owns the real estate...indirectly owns real estate |
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Term
| The vast majority of REITs are... |
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Definition
| self advised, vertically integrated operating companies. They actively manage their portfolios in an effort to grow their cash flow and their portfolios |
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Term
| When determining income available for dividends....what method are REITs required to use to determine depreciation |
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Definition
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Term
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Definition
- Equity trusts
- Mortgage trusts
- Hybrid trusts
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Term
| NAREITs classifications of equity REITs |
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Definition
- Industrial/Office
- Retail
- Residential
- Diversified
- Lodging/Resort
- Health Care
- Self-Storage
- Specialty
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Term
| Finite-life or self-liquidating REIT |
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Definition
| undertaken with the goal of disposing of its assets and distributing all proceeds to shareholders by a specified date |
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Term
| The equity-orientated real estate investment trust has provided investors with opportunities to... |
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Definition
- invest funds in a diversified portfolio of real estate under professional management
- own equity shares that trade on organized exchanges, thus providing more liquidity than if a property were acquired outright
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Term
REITs must be publicly traded.
T/F |
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Definition
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Term
| NAREIT classifies three typical types of private REITs |
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Definition
- institutional
- syndicated to investor as part of a package offered by financial consultant
- "incubator"
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Term
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Definition
| ...by analysts and investors as a measure of the CF available to the REIT for distribution |
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Term
| Difference between earnings and FFO |
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Definition
| Depreciation and gains from sale of property |
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Term
| 5 ways for a REIT to grow income and increase funds from operations |
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Definition
- growing income from existing properties
- growing income through acquisitions
- growing income through development
- growing income through provision of services
- financial engineering
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Term
| "signed leases scheduled to commence" x |
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Definition
| REIT is currently including the effect of leases not taking effect until a future date |
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Term
| Accounting issues to be wary of....x |
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Definition
- Tenant improvements that are capitalized and depreciated thus not accounted for in the FFO
- Leasing commissions depreciated over the life of the property thus not accounted for in the FFO
- Long term leases are averaged and in the event of a step up lease the FFO will be overstated early and understated late
- Third party management income is highly variable
- Interest rate risk on ARMs
- Advantages and disadvantages of ground leases
- Leased space vs Occupied space
- What is included in sales per square foot?
- Additional costs of going public
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Term
| What is the difference between an equity REIT and a mortgage REIT? |
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Definition
| Mortgage REITs do not own the real property....rather it owns mortgage paper secured by the underlying real property |
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Term
Explain how an investor in an equity REIT may receive a current dividend, part of which may be tax-deferred. x
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Definition
Part of the dividend paid by a REIT may represent “return of capital.” This can occur when the dividends per share exceeds earnings per share.
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