Dividend cuts possible at AR Global REITs, analysts say
The REITs are paying distributions to shareholders that exceed cash flow, in some cases by a wide margin
Jul 11, 2016 @ 1:02 pm | By Bruce Kelly | Investment News
Investors in a number of AR Global-sponsored real estate investment trusts face the potential danger of a cut in distributions, according to industry analysts and consultants.
The culprit is a REIT cash flow metric known as MFFO — or modified funds from operations, or cash flow, — at seven AR Global REITs that in the first quarter of 2016 failed to match or exceed their distributions. by wide margins.
It is typical for nontraded REITs to overpay distributions to investors in their initial stages while the companies buy properties, find tenants and negotiate leases. Over time, however, REITs cash flow and distributions — or dividends — should match up, or investors will see the value of the REIT erode, industry observers noted.
Blue Vault helps me to stay well informed on the financial status of both open and closed nontraded REITs and BDCs, so that I can help my clients better understand the product, before they make the decision to invest and after.