Chapter 14-REITs Flashcards
According to a Brandes Investment Institute and Prudential Financial study, return (rents+appreciation) for ___ averaged 9.3% vs. ___ for US stocks.
Almost all commercial leases include ___ to insulate owners from inflation.
commercial real estate; 9.7%
annual CPI adjustments
Since 1976,the rolling 60-month correlation between equity REITs and the S&P 500 has ranged from ___ to ___(2009 & 2010).
.2 (2001); over .8
At times, the addition of an equity REIT has been an excellent portfolio ___.
The best risk-adjusted returns on the CRSP Total Stock Market Index and the Wilshire REIT Equity Index have been from portfolios with a ___ weighting of REIT and stock asset categories; this composition yields a ___ annual return with __% SD.
risk-reduction tool.
50/50
14.5%; 13%
The REIT was defined and authorized by Congress in the Real Estate Investment Trust Act of ___ and the 1st REIT was formed in ____.
1960; 1963
From the end of 1992 tot he middle of 2001, the REIT industry’s size ____.
From 1999 to 2014, equity REIT assets ___.
increased 10X
grew 4X
Adding ___% dividend yield to capital appreciation of __% provides for a total return of 7-12%.
3-4; 4-8
According to the National Association of Real Estate Investment Trusts (NAREIT), from 2018-2023, annual dividend yield ranged from ___ in 2018 to ___ in 2021.
4.4%; 2.6%
As of January 2024, mortgage REITs had a __ dividend yield.
11.8%
REITs distribute at least __ of annual taxable income (excluding capital gains) as shareholder __.
REITs have at least ___ of its assets in real estate, other REITs, cash or __ securities.
REITs derive at least ___ of its gross income from rents, interest and __ of real estate.
REITs must have at least ___ and less than ___ of its shares in the hands of 5 or fewer shareholders.
90%; dividends.
75%; government
75%; sales
100 shareholders; 50%
The essential determinants of real estate risk are ___.
Real estate investments have often been ___; it is ___ rather than real estate risk itself that is the major risk.
Leverage, diversification, and quality of management.
Highly leveraged; high leverage
REIT investors should focus on ___, not inflation.
Market conditions and management ability
Back-to-back ___ for REITs (2007 & 2008) are rare. Prior to 1999 & 1998, the most recent period when REITs had ___ was 1974&1973.
Negative returns; back-to-back negative returns
During the 20-year period ending in 12/2023, equity REITs ($1.3 trillion) averaged ___% a year, __% from 1983-2023, and __% from 2019-2023.
9.4; 10.2; 7.6
The return correlation coefficient for equity REITs and S&P 500 from 1972-2023 was __,__ for small cap stocks and REITs.
60%, 78%
The ___ for REITs and long- & mid-term government bonds from 1972-2023 was 0.
Correlation coefficient
Contrary to popular wisdom, there is no automatic correlation between ___.
Based on RE performance data between 1978-1993, the net operating income of properties studied did not even come close ___.
Inflation and real estate value.
to keeping up with inflation.
A key advantage to owning high-yielding investments is ___
They provide a steady income during bear markets.
As of 2018, institutions owned __ of all REITs; individuals owned __.
85%; 15%
Property owners of retail neighborhood centers structure the lease often to contain ___ each year.
The lease may contain ___ if annual sales exceed certain minimum levels.
Fixed rent bumps that increase rents.
Overage rental provisions, resulting in increased rent
____ make expenses like RE taxes and assessments, repairs, maintenance and ___ the tenant’s responsibility.
___ may even require the tenant to ___ or condemnation.
Triple net leases; insurance
Triple net leases; restore property in the event of casualty
Since the cost of building a new mall easily reaches ____ million or more, ___ in a geographic area is rarely a concern.
This factor gives malls ___ most other property types.
$200; overbuilding
A substantial edge over
A problem unique to the office sector is lag time between ___.
Once development has begun, even if the builder of lender realizes ___, it’s often too late to stop the process.
Obtaining building permits and final completion.
There is no longer demand for a new office building
Public REITs own ___ industrial real estate.
While the ___ million cost of developing industrial is significant, it’s low enough for merchant developers to ___.
One advantage for industrial real estate developers is the ___.
Just 1%
$2-$10; build speculative buildings that could create excess space
Relatively low ongoing capital expenditures to keep industrial buildings in good repair
Health care REITs do not ___ so maintain low overhead.
Healthcare REITs have advantages for investors okay with ___.
These REITs are very ___ and a substantial portion of revenues come from ___.
Operate any of their properties.
Lower growth rates as a trade off for unusually high dividend yields.
recession resistant; government programs like Medicare.
Long-term negatives of health care REITs are heavy reliance on ___, possibility of adverse changes to ___ programs, ___ of various operators/lessees, ___ in the assisted living sector, increase regulation of health care and looming threat of ___.
Capital markets to fund growth; government reimbursement; financial health; periodic overbuilding; class action suits against lessees and facility owners.
The hotel sector of the commercial real estate industry has ___.
Investors have had to contend ___.
Been highly cyclical.
with conflicts of interest.
According to the Manufactured Housing institute, __ new single-family housing starts is a manufacture home.
1 of 6
A REIT portfolio allocated towards actual weighting within the real estate market ___.
Makes the most sense.
Investors in stock use ___ as a key measure of profitability while REITs use ___.
net income; funds of operations (FFO).
