Study Session 13 - Publicly Traded Real Estate Securities

Question 0

Debt publicly traded RES?

Answer 0

MBS

residential or commercial MBS

Mortgage REIT –> invest in mortgage and debt

Question 1

REIT vs REOC

Answer 1

REIT are tax-advantaged companies

REOC are not tax-advantaged

Question 2

Advantage of REIT and REOC

Answer 2

superior liquidity
lower min investment
limited liability
access to premium properties
active management
protection accorded to publicly traded securities

REIT-specific advantages

exemption of taxation
predictable earnings
high yield

Question 3

Disadvantages of REIT and REOC

Answer 3

taxes vs direct ownership
lack of control
cost of publicly traded corporate structure
price is determined by market
structural conflict of interest

Question 4

what is the net asset value per share?

Answer 4

amount by which assets exceed liabilities, using current market values rather than accounting book values

Question 5

cap rate calculation

Answer 5

NOI/Property value

Question 6

Net asset value per share calculation

Answer 6

1- Calculate the cap rate

2- Capitalize the NOI (expected income in the coming year)

3- add the value of the other tangible assets and substract the value of liabilities (we got the NAV now)

4- divide by the # of shares

Question 7

FFO calculation

Answer 7

Accounting net earnings
+ depreciation expense
+ deferred tax expenses (i.e., deferred tax liabilities)
- gains from sales of property and debt restructuring
+ loss from sales of property and debt restructuring

Question 8

AFFO calculation

Answer 8

FFO

• non-cash (straight-line) rent adjustment
• recurring maintenance-type capex and leasing commissions

Question 9

which is more considered for the measure of economic income

Answer 9

AFFO is better because it considers the capex that are required to sustain the property’s economic income

Question 10

how to value (methods)

Answer 10

1- NAVPS
2- P/FFO or P/AFFO
3- DCF

Question 11

Which of the following statement least accurately describes a feature of the DOWNREIT structure? it is…
a- is the most common REIT in the US
b- may own peoperties at both the REIT and partnership level
c- can form partnership for each property acquisition it undertakes

Answer 11

a