CMFAS CM-EIP REITs & Business Trusts question: REIT's ability to pay distributions

CMFAS CM-EIPREITs & Business Trusts

How does a REIT's ability to pay distributions differ from a company's ability to pay dividends?

A A REIT can pay only out of accounting profit, whereas a company can also pay from its cash flow
B Both a REIT and a company can pay only out of accounting profit, never cash flow
C Neither a REIT nor a company may pay anything in a year when it makes a loss
D A REIT can pay from operating cash flow even in a loss year; a company generally needs profits

Show the answer and explanation

Answer: D. A REIT can pay from operating cash flow even in a loss year; a company generally needs profits

REITs (and many business trusts) can distribute from operating cash flow, so they may pay even when non-cash depreciation causes an accounting loss; a company can generally only pay dividends out of profits.

Common mistake

Assuming REITs, like companies, can only distribute out of accounting profit.

Practise more CM-EIP REITs & Business Trusts questions

Exam-style questions with worked answers, then full timed mocks. Free to start.

Start practising →

Study note: REITs & Business Trusts CMFAS CM-EIPpractice questions & mock exams

CMFAS CM-EIP REITs & Business Trusts question: REIT's ability to pay distributions

Answer: D. A REIT can pay from operating cash flow even in a loss year; a company generally needs profits

Common mistake

Related CMFAS CM-EIP questions

CMFAS CM-EIP REITs & Business Trusts question: REIT's ability to pay distributions

Answer: D. A REIT can pay from operating cash flow even in a loss year; a company generally needs profits

Common mistake

Related CMFAS CM-EIP questions