Chapter 21—Real Estate Investment Trusts (REITs)
Solutions to Questions—Chapter 21
Real Estate Investment Trusts (REITs)
Question 21-1
What are the general requirements regarding income, investments, and dividends with which a REIT must comply
to maintain its qualification to be taxed as a REIT?
Question 21-2
What are the two principal types of REITs?
Question 21-3
List and characterize equity REITs based on their property types.
• Industrial/Office: REITs that specialize in owning industrial, office and/or a mix of industrial and office
properties. These REITs can be further divided based on the property location in which they invest, such as
Chapter 21—Real Estate Investment Trusts (REITs)
Solutions to Problems—Chapter 21
Real Estate Investment Trusts (REITs)
Problem 21-1
(a) Assuming dividends are set at 90% x EPS, or $2.03 per share
EPS: (Net Income) / (Shares Outstanding) = $2.26
(b)
Assuming that National paid a minimum dividend of $2.03 per share (90% of EPS) and investors capitalized dividends paid
by National at .08, the indicated price would by $2.03 / .08, or $25.37.
(c)
Net Revenue $100,000,000
Chapter 21—Real Estate Investment Trusts (REITs)
Operating Statement
Year
(1) (2) (3)
Net Revenue $15,000,000 $15,750,000 $16,537,500
Less:
Relevant Ratios for Year One
Assuming dividends are set at $4.00 per share
EPS: (Net Income) / (Shares Outstanding) = $.20
(a) Note that major differences occur in the above ratios under each approach. Using the $4.00 dividend in each case, note
the changes in EPS and ROC in particular.
Approach 1 Approach 2
Problem 21-3
(a) FFO = $8 + $2 = $10 per share
