REITs & BDCs High-Yield Guide: FFO, AFFO & Debt Safety
Mastering real estate investment trusts and business development companies for maximum monthly income.
The Special Regulatory Structure of REITs & BDCs
Real Estate Investment Trusts (REITs) and Business Development Companies (BDCs) are legally mandated by Congress to pay out at least 90% of their taxable income to shareholders as dividends in exchange for paying zero corporate income taxes.
Why Traditional P/E Ratios Fail for REITs
Real estate properties carry heavy GAAP depreciation write-offs, which artificially depress net earnings while physical properties often appreciate in value. Smart investors measure performance using:
- Funds From Operations (FFO): Net income plus depreciation and amortization, minus property sales gains.
- Adjusted Funds From Operations (AFFO): FFO minus recurring maintenance capital expenditures; the truest metric of dividend safety.
Review taxation details in our Qualified vs. Ordinary Tax Guide.
Frequently Asked Questions
Why do interest rates affect REIT stock prices so heavily?
REITs rely continuously on debt issuance to buy commercial real estate properties. When interest rates rise, borrowing costs surge and higher bond yields compete with REIT dividend yields.