Investment Companies - REITs and BDCs

Question 1

A REIT is a _______ investment company

Answer 1

closed-end

Question 2

Shares of REITs can be traded and can be _____ and sold______

Answer 2

bought on margin and sold short

Question 3

REITs are registered under the ______

Answer 3

Securities Act of 1933

Question 4

Equity REITs invest directly in _____ and have lower levels of ______

Answer 4

properties and have lower levels of leverage

Question 5

REITs are helpful with interest rates are _____ and the ______ is providing low returns

Answer 5

interest rates are low and stocks are flat

Question 6

Mortgage REITs invest primarily in _____ and ____ loans

Answer 6

mortgages and construction loans

Question 7

Mortgage REITs make their money from the ____ and are highly _____

Answer 7

make money from the spread and are highly levered

Question 8

REITs are regulated under subchapter ____ of the IRS code

Answer 8

subchapter M

Question 9

REITs ______ pay tax on distributed net income

Answer 9

DO NOT

Question 10

To qualify for subchapter M, a REIT must meet tests in 4 areas:

Answer 10

• at least 75% of income is related to real estate
• at least 75% of REITs assets must be invested in real estate (the other 25% can be in gov’t securities, cash, or other REITs)
• the REIT must be an unincorporated entity managed by one or more trustee; its shares must be negotiable
• at least 90% of NII must be distributed to shareholders each year

Question 11

The new law that reduced tax on common dividends to 15% ______ apply to REIT dividend distributions.

Answer 11

DOES NOT, still taxed at ordinary income tax of up to 39.6%

Question 12

There is no _____ requirement for capital gains for REITs

Answer 12

minimum distribution requirement, if the REIT retains capital gains it must pay tax on that amount

Question 13

BDC (Business Development Companies) typically invest in _______

Answer 13

privately held start-ups at early growth stages

Question 14

A BDC is a _______ equity investor and typically invests _____ that can be converted to equity.

Answer 14

private equity, typically invests debt that is convertible to equity

Question 15

BDCs must distribute ____ of NII to receive subchapter M tax treatment

Answer 15

90%