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CS Professional · Strategic Management and Corporate Finance · Real Estate Investment Trusts

Which of the following is a feature of the net distributable cash flows (NDCF) framework that the manager of a REIT must follow when deciding distributions?

NDCF is computed at every level: each SPV, holdco and the REIT itself. SPVs and holdcos must pass on at least 90% of their NDCF upward, so cash flows reach unitholders. It is cash-based, not accounting profit.

  1. ANDCF is computed at the level of the REIT and at each holdco and SPV, and the SPV/holdco must distribute at least 90% to the REITCorrect
  2. BNDCF is computed only at the level of the REIT and SPVs may retain all cash
  3. CNDCF is based only on accounting net profit after depreciation at REIT level
  4. DNDCF is determined by the trustee alone

Explanation

The regulations compute NDCF at each SPV, holdco and the REIT, with the SPV/holdco required to distribute at least 90% to the REIT (or holdco). Computation is cash-flow based, not accounting profit, and the manager, not the trustee alone, handles it. Therefore only the first option is correct.

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