Keep the tax base attached to the percentage
The commonly cited US REIT distribution requirement generally means at least 90% of REIT taxable income, excluding net capital gains and subject to applicable adjustments. Removing the phrase taxable income changes the meaning. It does not require a company to pay out 90% of rent collected, property value, operating cash flow or AFFO. Tax rules also address qualification, timing and other matters; the percentage alone is not a complete guide to REIT taxation.
Why several income numbers coexist
GAAP net income follows financial reporting rules. Taxable income follows tax rules. FFO adjusts selected real-estate accounting items, and AFFO is an issuer-defined non-GAAP measure. Depreciation and transaction treatment can make these amounts diverge. A company can distribute a large fraction of taxable income while retaining a larger fraction of its reported AFFO. That does not eliminate its capital spending, debt repayments or other uses of cash.
Qualification and sustainability answer different questions
A qualification calculation asks whether a legal distribution requirement has been satisfied. A sustainability review asks how future dividends will be funded through a range of operating and financing conditions. Property maintenance, lease incentives, maturities and preferred dividends all matter. Funding a distribution with asset sales may be sensible during a portfolio transition, yet it cannot be assumed to repeat indefinitely. Examine cash sources over several years rather than treating one year's distribution as a permanent run rate.
The shareholder tax result is another separate question
The tax character of a distribution can differ from the issuer's operating narrative. Ordinary income, capital-gain distributions and return-of-capital components may have different treatments depending on jurisdiction, account type and the investor's circumstances. Do not use an AFFO payout ratio to determine your tax bill. Use the issuer's final tax reporting and the relevant tax authority's guidance. The site's calculators use an explicit user-supplied withholding assumption, not a determination of tax liability.
Hypothetical: two denominators
Assume REIT taxable income is $60 and an issuer reports $100 of AFFO for the same period. A simplified 90% calculation gives $54, while a $75 common distribution would be a 75% AFFO payout. These are different calculations. The example omits qualification adjustments, capital gains and timing rules and does not establish any company's required distribution.
A common mistake
Neither a 90% distribution requirement nor a payout below 90% of AFFO establishes that the current dividend is safe.
What to check in the disclosures
- Name the income measure and period for every percentage.
- Read the issuer's distribution and tax disclosures.
- Separate recurring funding from sales, borrowing and new equity.
- Use final tax documents for personal reporting.
Sources & scope
This guide focuses on US REITs. Examples are hypothetical unless explicitly attributed. Definitions and issuer disclosures can change; use the current source and the issuer's own reconciliation.
Educational material, not a recommendation or personalized investment advice. How these guides are prepared · Report a correction