Question

1. A REIT with 100 shares outstanding earns $1,000 in rent and incurs operating expenses of $400.  In addition, the REIT owns property with an historic cost of $6,000 and depreciates it over a15 year period using straight-line depreciation.  What are the funds from operations per share and the earnings per share for this REIT? (C)

(A)     $4 and $3, respectively

(B)     $4 and $2, respectively

(C)     $6 and $2, respectively

(D)     $6 and $3, respectively

2. Considering the REIT in the question above, at the very least what dividend payment must it make to maintain its tax exempt status? (A)

(A)     $1.90

(B)     $2.85

(C)     $3.80

(D)     $5.70

Answer 1

No of shares = 100

Income = 1000

Expenses :

Operating = 400

Fund from operations = 1000 - 400 = 600

Fund from operations per share = 600 / 100 = 6

Property cost = 6000 & Life = 15 yr

Depreciation by straight Line method = 6000/15= 400

Hence , Earnings = Income - Expenses

= 1000 - 800

= 200

EPS = 200 / 100 = 2

Out of the options all options except 1.9 are above the EPS and we can't pay above the EPS. Also , 2- 1.9 will give 0.1 which will be excepted for the tax.