Chapter 14-REITs

Question 1

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.

Answer 1

commercial real estate; 9.7%
annual CPI adjustments

Question 2

Since 1976,the rolling 60-month correlation between equity REITs and the S&P 500 has ranged from ___ to ___(2009 & 2010).

Answer 2

.2 (2001); over .8

Question 3

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.

Answer 3

risk-reduction tool.
50/50
14.5%; 13%

Question 4

The REIT was defined and authorized by Congress in the Real Estate Investment Trust Act of ___ and the 1st REIT was formed in ____.

Answer 4

1960; 1963

Question 5

From the end of 1992 tot he middle of 2001, the REIT industry’s size ____.
From 1999 to 2014, equity REIT assets ___.

Answer 5

increased 10X
grew 4X

Question 6

Adding ___% dividend yield to capital appreciation of __% provides for a total return of 7-12%.

Answer 6

3-4; 4-8

Question 7

According to the National Association of Real Estate Investment Trusts (NAREIT), from 2018-2023, annual dividend yield ranged from ___ in 2018 to ___ in 2021.

Answer 7

4.4%; 2.6%

Question 8

As of January 2024, mortgage REITs had a __ dividend yield.

Answer 8

11.8%

Question 9

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.

Answer 9

90%; dividends.
75%; government
75%; sales
100 shareholders; 50%

Question 10

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.

Answer 10

Leverage, diversification, and quality of management.
Highly leveraged; high leverage

Question 11

REIT investors should focus on ___, not inflation.

Answer 11

Market conditions and management ability

Question 12

Back-to-back ___ for REITs (2007 & 2008) are rare. Prior to 1999 & 1998, the most recent period when REITs had ___ was 1974&1973.

Answer 12

Negative returns; back-to-back negative returns

Question 13

During the 20-year period ending in 12/2023, equity REITs ($1.3 trillion) averaged ___% a year, __% from 1983-2023, and __% from 2019-2023.

Answer 13

9.4; 10.2; 7.6

Question 14

The return correlation coefficient for equity REITs and S&P 500 from 1972-2023 was __,__ for small cap stocks and REITs.

Answer 14

60%, 78%

Question 15

The ___ for REITs and long- & mid-term government bonds from 1972-2023 was 0.

Answer 15

Correlation coefficient

Question 16

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 ___.

Answer 16

Inflation and real estate value.
to keeping up with inflation.

Question 17

A key advantage to owning high-yielding investments is ___

Answer 17

They provide a steady income during bear markets.

Question 18

As of 2018, institutions owned __ of all REITs; individuals owned __.

Answer 18

85%; 15%

Question 19

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.

Answer 19

Fixed rent bumps that increase rents.
Overage rental provisions, resulting in increased rent

Question 20

____ make expenses like RE taxes and assessments, repairs, maintenance and ___ the tenant’s responsibility.
___ may even require the tenant to ___ or condemnation.

Answer 20

Triple net leases; insurance
Triple net leases; restore property in the event of casualty

Question 21

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.

Answer 21

$200; overbuilding
A substantial edge over

Question 22

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.

Answer 22

Obtaining building permits and final completion.
There is no longer demand for a new office building

Question 23

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 ___.

Answer 23

Just 1%
$2-$10; build speculative buildings that could create excess space
Relatively low ongoing capital expenditures to keep industrial buildings in good repair

Question 24

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 ___.

Answer 24

Operate any of their properties.
Lower growth rates as a trade off for unusually high dividend yields.
recession resistant; government programs like Medicare.

Question 25

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 ___.

Answer 25

Capital markets to fund growth; government reimbursement; financial health; periodic overbuilding; class action suits against lessees and facility owners.

Question 26

The hotel sector of the commercial real estate industry has ___.
Investors have had to contend ___.

Answer 26

Been highly cyclical.
with conflicts of interest.

Question 27

According to the Manufactured Housing institute, __ new single-family housing starts is a manufacture home.

Answer 27

1 of 6

Question 28

A REIT portfolio allocated towards actual weighting within the real estate market ___.

Answer 28

Makes the most sense.

Question 29

Investors in stock use ___ as a key measure of profitability while REITs use ___.

Answer 29

net income; funds of operations (FFO).