Why REIT Dividend Payout Ratios Look Impossible

REIT Valuation: FFO and AFFO Analysis Guide

Breaks down why REIT dividend payout ratios calculated on GAAP net income routinely look "impossible" (well over 100%, sometimes 300%+) even for perfectly healthy REITs — because depreciation, a massive non-cash accounting expense for real estate, crushes reported earnings without ever touching actual cash in the bank. Covers FFO and AFFO as the real industry-standard cash metrics, occupancy and WALE (weighted average lease expiry) as portfolio-quality signals, gearing ratios and the 50% regulatory buffer, and the "80–95 Rule" heuristic for sector-level payout sanity checks.

REIT Dividend Payout Ratios

Pull up almost any REIT on a mainstream finance site and you'll see a dividend payout ratio that should be a five-alarm fire — 200%, 300%, sometimes higher. If a regular company paid out three times its earnings, you'd run. So why don't REIT investors? Because the number lying to you is net income, not the company. This episode breaks down Funds From Operations (FFO) and its sharper cousin, Adjusted FFO (AFFO) — the real cash-based metrics REITs actually get judged on, and why depreciation, the single biggest non-cash charge on a REIT's books, makes GAAP earnings almost useless for this sector. We walk through what a healthy AFFO payout ratio actually looks like using the "80–95 Rule," how occupancy rates and weighted average lease expiry (WALE) tell you whether the cash behind that payout is durable, and why a "safe-looking" 60% payout ratio on a public screener can secretly be a REIT quietly starving its own property maintenance budget to keep the number pretty.

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Extra questions worth exploring in the notebook:

• What's the actual capex-capitalization trap the notebook mentioned — how do some REITs game AFFO by capitalizing costs that should really be expensed against maintenance?
• How does the 50% regulatory gearing buffer work, and does it vary meaningfully between property sectors (retail vs. industrial vs. healthcare REITs)?
• Since the REIT Scout already differentiates equity REITs from mortgage REITs — does FFO/AFFO even apply cleanly to mREITs, or do they need a completely different cash metric given they don't own physical property?

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