How REIT Dividends Are Covered (FFO and AFFO)
REIT payouts cannot be judged by the ordinary payout ratio: depreciation depresses REIT earnings without touching cash, so the sector's coverage measures are funds from operations (FFO) and its adjusted version (AFFO).
Why REIT earnings mislead
A REIT's buildings are depreciated on the income statement year after year even when their market value is rising. That makes reported earnings — the denominator of the standard payout ratio — artificially small, and routinely pushes REIT payout ratios above 100% while the dividend is comfortably funded.
FFO adds depreciation back and removes property-sale gains; AFFO further subtracts the recurring capital spending needed to keep properties leasable. AFFO is the closest thing REITs have to distributable cash.
Reading REIT coverage in practice
The distribution rule that defines the structure — at least 90% of taxable income must be paid out — makes high payout normal, not alarming. The questions that matter are whether AFFO per share covers the dividend with room to spare, and whether occupancy and rents support the AFFO.
We do not currently carry FFO/AFFO data, so EPS-based ratios on REIT pages are labeled as such rather than presented as coverage. Payment history and the trend of the payout remain the strongest signals available in our dataset.