End of Chapter 21 Questions and Answers

End of Chapter 21 Questions and Answers - End of Chapter 21...

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End of Chapter 21 Questions and Answers 1. What are the restrictions on REIT annual gross revenue sources and taxable income distributions necessary for a REIT to maintain its exemption from corporate income tax? Answer: 75% or more of the REITs total assets must be real estate, mortgages, cash, or federal government securities, and 75% or more of the REIT’s yearly gross income must be derived directly or indirectly from real property (including mortgages, partnerships and other REITs). 90% or more of the REIT’s annual taxable income must be distributed to shareholders as dividends each year. 2. What is NAV and why might it make sense to buy real estate directly some of the time and through REITs some of the time? Answer: Net Asset Value is similar to book value for a corporation. It is based on the appraised value of the properties owned by a REIT less the mortgage debt. When NAVs per share for a REIT are above the stock price per share then theoretically the REIT could be liquidated and sold for more than the stock. When the NAV per share are well below the REIT price per share then it may make more sense to buy direct property. There is a
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This note was uploaded on 02/07/2012 for the course FIN 4380 taught by Professor Staff during the Spring '08 term at Texas State.

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End of Chapter 21 Questions and Answers - End of Chapter 21...

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