CAIA - 17 - Listed vs. Unlisted Real Estate

Question 1

___-___ real estate funds are funds with an indefinite life that do not limit the number of shares they offer investors.

Answer 1

Open-end real estate funds are funds with an indefinite life that do not limit the number of shares they offer investors.

Question 2

In the ___, open-end funds typically redeem on a first come, first serve basis. In ___, investors do not typically have to wait.

Answer 2

In the U.S., open-end funds typically redeem on a first come, first serve basis. In Europe, investors do not typically have to wait.

Question 3

In the UK, the primary unlisted open-end investment vehicle is a ___ ___ ___ .

Answer 3

In the UK, the primary unlisted open-end investment vehicle is a property unit trust.

Question 4

Property unit trust prices are based on ___ ___.

Answer 4

Property unit trust prices are based on appraised values.

Question 5

In the UK ___ ___are unregulated property unit trusts open only to institutional investors that are exempt from capital gains tax or corporation tax.

Answer 5

In the UK unauthorized PUTs are unregulated property unit trusts open only to institutional investors that are exempt from capital gains tax or corporation tax.

Question 6

___ ___ are designed to provide UK retail investors exposure to RE properties.

Answer 6

Authorized PUTs are designed to provide UK retail investors exposure to RE properties.

Question 7

Authorized puts (are/are not) exempt from capital gains tax

Answer 7

Authorized puts are exempt from capital gains tax

Question 8

There are three types of property unit trusts (PUTs) for UK RE exposure:

1. ___ PUTs
2. ___ PUTs
3. ___ PUTs

Answer 8

There are three types of property unit trusts (PUTs) for UK RE exposure:

1. Unauthorized PUTs
2. Authorized PUTs
3. Offshore PUTs

Question 9

___ ___ ___ ___ are investment vehicles that can invest in RE directly or indirectly (primarily via UK REITs)

Answer 9

Property authorized investment funds are investment vehicles that can invest in RE directly or indirectly (primarily via UK REITs)

Question 10

___-___real estate funds are funds with a finite life that issue a fixed number of shares before making any RE investments.

Answer 10

Closed-end real estate funds are funds with a finite life that issue a fixed number of shares before making any RE investments.

Question 11

Most closed-end RE funds are established as ___ ___, a key advantage of which is their ___-___status.

Answer 11

Most closed-end RE funds are established as limited partnerships, a key advantage of which is their tax-neutral status.

Question 12

Real estate fund of funds are typically ___-end in the U.S. and U.K and ___-end in the rest of Europe.

Answer 12

Real estate fund of funds are typically open-end in the U.S. and U.K and closed-end in the rest of Europe.

Question 13

The advantage of a fund of funds is that it provides ___.

Answer 13

The advantage of a fund of funds is that it provides diversification.

Question 14

The disadvantage of a fund of funds is that it has ___ ___.

Answer 14

The disadvantage of a fund of funds is that it has extra fees.

Question 15

There are four advantages of unlisted RE funds:

1. ___ of ___
2. ___ ___ provides potentially higher returns and less risk
3. ___ ___ for certain regions or subsectors
4. ___-___income.

Answer 15

There are four advantages of unlisted RE funds:

1. Diversification of risk
2. Skilled managers provides potentially higher returns and less risk
3. Targeted investments for certain regions or subsectors
4. Tax-exempt income.

Question 16

There are 3 main disadvantages of fund of funds:

1. ___ ___ can reduce returns
2. ___can be significant
3. ___and ___-___effect

Answer 16

There are 3 main disadvantages of fund of funds:

1. Cash drag can reduce returns
2. Fees can be significant
3. Leverage and J-curve effect

Question 17

___ ___are vertically integrated firms involved in land acquisition, development, ownership, operation and tenant services.

Answer 17

Large REITs are vertically integrated firms involved in land acquisition, development, ownership, operation and tenant services.

Question 18

___ are professionally managed, and have the tax advantage of not paying corporate income tax on taxable profits provided they distribute a large portion of their income to shareholders in the form of dividends.

Answer 18

REITs are professionally managed, and have the tax advantage of not paying corporate income tax on taxable profits provided they distribute a large portion of their income to shareholders in the form of dividends.

Question 19

___ ___ ___ ___ are similar to REITs except they search for capital gains and are more flexible.

Answer 19

Real Estate Operating Companies are similar to REITs except they search for capital gains and are more flexible.

Question 20

Real Estate ETFs offer the following advantages:

1. ___ ___
2. ___ ___
3. ___-___features.

Answer 20

Real Estate ETFs offer the following advantages:

1. Low cost
2. Tax efficent
3. Stock-like features.

Question 21

There are 6 advantages of listed RE funds:

1. ___ of ___
2. ___and ___
3. ___ ___ to RE
4. ___ for investors
5. ___ investments
6. ___-___ income

Answer 21

There are 6 advantages of listed RE funds:

1. Diversification of risk
2. Liquidity and divisibility
3. Instant exposure to RE
4. Information for investors
5. Targeted investments
6. Tax-exempt income

Question 22

There are 2 disadvantages of RE funds:

1. Trade at ___/___to ___
2. ___ ___ with stocks.

Answer 22

There are 2 disadvantages of RE funds:

1. Trade at discount/premium to NAV
2. Highly correlated with stocks.

Question 23

Non-US REITs (do/do not) pay corporate taxes

Answer 23

Non-US REITs do not pay corporate taxes

Question 24

Global REITs differ from US REITs on rules related to ___ and ___of ___

Answer 24

Global REITs differ from US REITs on rules related to management and use of leverage

Question 25

Many non-US REITs have ___ managers

Answer 25

Many non-US REITs have **external** managers

Question 26

Many non-US REITs have limits on ___ \_\_\_

Answer 26

Many non-US REITs have limits on **debt financing**

Question 27

Most REITs adopt an \_\_\_, \_\_\_-\_\_\_style

Answer 27

Most REITs adopt an **active, top-down** style

Question 28

REITs typically apply a (growth/value) style

Answer 28

REITs typically apply a **growth** style

Question 29

\_\_\_-\_\_\_ ___ are illiquid investments that are available to retail investors through registered investment advisors.

Answer 29

**Non-Traded REITs** are illiquid investments that are available to retail investors through registered investment advisors.

Question 30

Non-Traded REITs typically have a life span of \_\_\_-\_\_\_years.

Answer 30

Non-Traded REITs typically have a life span of **7-10** years.

Question 31

Non-traded REITs have up front fees of \_\_\_-\_\_\_%

Answer 31

Non-traded REITs have up front fees of 12-15%

Question 32

A major challenge for Non-Traded REITs occurs in the \_\_\_-\_\_\_ phase, when investors expect ___ but the REIT needs to ___ \_\_\_.

Answer 32

A major challenge occurs in the **ramp**-**up** phase, when investors expect **dividends** but the REIT needs to **cover fees**.

Question 33

Non-Traded REITs must pay out \_\_\_% of taxable income as dividends

Answer 33

Non-Traded REITs must pay out **90**% of taxable income as dividends

Question 34

Non-Traded REITs are classified as \_\_\_, \_\_\_or \_\_\_.

Answer 34

Non-Traded REITs are classified as **equity**, **mortgage** or **hybrid**.

Question 35

The life cycle of non-traded REITs has 4 phases: 1. ___ \_\_\_ 2. ___ \_\_\_ 3. ___ \_\_\_ 4. \_\_\_

Answer 35

The life cycle of non-traded REITs has 4 phases: **1. Capital raising** **2. Property purchase** **3. Asset management** **4. Disposition**

Question 36

Non-Traded REITs can adopt two strategies or a combination of: 1. ___ \_\_\_ 2. ___ \_\_\_

Answer 36

Non-Traded REITs can adopt two strategies or a combination of: **1. Current income** **2. Price appreciation**

Question 37

Non-Traded REITs receive 3 key criticisms: 1. ___ presents misleadingly ___ \_\_\_ 2. ___ \_\_\_that entail \_\_\_of \_\_\_ 3. Use \_\_\_to fund ___ \_\_\_

Answer 37

Non-Traded REITs receive 3 key criticisms: 1. **Illiquidity** presents misleadingly **low volatility** 2. **High fees** that entail **conflicts** of **interest** 3. Use **leverage** to fund **dividend payments**

Question 38

There are 4 potential reasons why publicly traded REITs have wider return dispersions: 1. Prices are ___ \_\_\_ 2. Underlying properties have ___ \_\_\_ 3. REITs use \_\_\_ 4. Volatility due to equity market ___ \_\_\_

Answer 38

There are 4 potential reasons why publicly traded REITs have wider return dispersions: 1. Prices are **not smoothed** 2. Underlying properties have **different risks** 3. REITs use **leverage** 4. Volatility due to equity market **liquidity shifts**

Question 39

The importance of acurate pricing and risk estimation can be considered at the ___ level and \_\_\_level.

Answer 39

The importance of acurate pricing and risk estimation can be considered at the **investor** level and **macroeconomic** level.

Question 40

The macroeconomic level of mispricing risk is that RE projects will be ___ relative to the \_\_\_to \_\_\_.

Answer 40

The macroeconomic level of mispricing risk is that RE projects will be **overfunded** relative to the **benefit** to **society**.

Question 41

The ___ of ___ involves any collection of securities in a single entity.

Answer 41

The **pooling** of **securities** involves any collection of securities in a single entity.

Question 42

\_\_\_ is the pooling of non-publicly traded assets into publicly traded securities.

Answer 42

**Securitization** is the pooling of non-publicly traded assets into publicly traded securities.

Question 43

A benefit of ETFs is that their underlying securities can be ___ when an ETF's market price deviates from the NAV.

Answer 43

A benefit of ETFs is that their underlying securities can be **arbitraged** when an ETF's market price deviates from the NAV.

Question 44

Financial market ___ refers to differences in pricing of similar assets trading in separate markets, which is attributable to differences in the markets due to different market clientele.

Answer 44

Financial market **segmentation** refers to differences in pricing of similar assets trading in separate markets, which is attributable to differences in the markets due to different market clientele.

Question 45

The ___ \_\_\_ specify that REITs that trade a particular percentage of properties in a specific time period have their capital gains fully taxed.

Answer 45

The **dealer rules** specify that REITs that trade a particular percentage of properties in a specific time period have their capital gains fully taxed.

Question 46

REIT indexes have ___ autocorrelation.

Answer 46

REIT indexes have **low** autocorrelation.