RM 470 Exam questions with verified
solutions
What is a Real Estate Operating Company? - correct answer ✔✔•A company that derives its income
from real estate investments.
•A company that lists its primary business as real estate.
So, REITs are like typical companies traded on the stock exchanges, except: - correct answer ✔✔-Low (or
no) corporate income tax
-Restricted to real estate investment related activities
-Must pay out 90% of earnings in dividends
So, REITs are Also different from direct real estate investment, as their equity is publicly traded: - correct
answer ✔✔-Differences in risk and return
-Lead/lag relationship in price discovery
-Public trading creates liquidity
-Enhances ownership by small passive investors without expertise
Asset Test for US REITs - correct answer ✔✔-At least 75% of a REIT's asset value must come from real
estate, cash, and government securities at the close of each quarter of taxable year
, - No more than 5% of the value of the assets may consist of the securities of one issuer, and REIT may
not own more than 10% of the outstanding shares of one issuer, if those securities are not includable in
the 75% test
Income Test for US REITs - correct answer ✔✔-At least 95% of gross income must come from dividends,
interests, rents, or gains from sale of certain assets
-No more than 30% of REITs gross income can be derived from sale of real estate held for less than four
years or securities held for less than six months
Distribution Test for US REITs - correct answer ✔✔-At least 90% of the REIT taxable income must be
distributed to shareholders
Stock and Ownership Test for US REITs - correct answer ✔✔-REIT shares must be transferable and must
be held by a minimum of 100 persons
-No more than 50% of REIT shares may be held by five or fewer persons
REITs can be structured either as a _____________ (US) or a ______________ (Australia) - correct
answer ✔✔Corporation or a Unit Trust
REITs can either be directly managed __________________ (US) or externally managed through
____________________ (Asian Countries) - correct answer ✔✔internally
a third party asset management company
A REIT typically does not ________________ - i.e. investors cannot require the REIT to redeem their
shares (they are _________________) - correct answer ✔✔make a market
closed-end funds
Listed REITs are typically set up to operate ______________, although they can be structured with
_________________. - correct answer ✔✔indefinitely
solutions
What is a Real Estate Operating Company? - correct answer ✔✔•A company that derives its income
from real estate investments.
•A company that lists its primary business as real estate.
So, REITs are like typical companies traded on the stock exchanges, except: - correct answer ✔✔-Low (or
no) corporate income tax
-Restricted to real estate investment related activities
-Must pay out 90% of earnings in dividends
So, REITs are Also different from direct real estate investment, as their equity is publicly traded: - correct
answer ✔✔-Differences in risk and return
-Lead/lag relationship in price discovery
-Public trading creates liquidity
-Enhances ownership by small passive investors without expertise
Asset Test for US REITs - correct answer ✔✔-At least 75% of a REIT's asset value must come from real
estate, cash, and government securities at the close of each quarter of taxable year
, - No more than 5% of the value of the assets may consist of the securities of one issuer, and REIT may
not own more than 10% of the outstanding shares of one issuer, if those securities are not includable in
the 75% test
Income Test for US REITs - correct answer ✔✔-At least 95% of gross income must come from dividends,
interests, rents, or gains from sale of certain assets
-No more than 30% of REITs gross income can be derived from sale of real estate held for less than four
years or securities held for less than six months
Distribution Test for US REITs - correct answer ✔✔-At least 90% of the REIT taxable income must be
distributed to shareholders
Stock and Ownership Test for US REITs - correct answer ✔✔-REIT shares must be transferable and must
be held by a minimum of 100 persons
-No more than 50% of REIT shares may be held by five or fewer persons
REITs can be structured either as a _____________ (US) or a ______________ (Australia) - correct
answer ✔✔Corporation or a Unit Trust
REITs can either be directly managed __________________ (US) or externally managed through
____________________ (Asian Countries) - correct answer ✔✔internally
a third party asset management company
A REIT typically does not ________________ - i.e. investors cannot require the REIT to redeem their
shares (they are _________________) - correct answer ✔✔make a market
closed-end funds
Listed REITs are typically set up to operate ______________, although they can be structured with
_________________. - correct answer ✔✔indefinitely
