IRS OKs Dividend Option; Will REITs Use It?


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Fitch analysts provide some guidance on how REITs could view taxable stock distributions.

NEW YORK CITY—In a move similar to its actions during the 2008-2009 financial crisis, the Internal Revenue Service earlier this year issued a private letter ruling that allows a REIT to satisfy up to 80% of its taxable income distribution requirement in the form of a taxable stock dividend. While Fitch Ratings sees this as “another instance of IRS approval of a tactic that could help alleviate liquidity pressure during periods of capital markets stress,” the ratings agency questions how much it will change REITs’ credit ratings.

“Applying this ruling across the sector would serve as a liquidity enhancement to support ratings on the downside as similar IRS policies did during 2008-2010, corresponding with the global financial crisis,” according to Fitch. “However, it is unlikely to result in positive rating momentum unless REITs commit to and act on paying meaningful stock dividends as part of their ongoing liquidity management strategy through cycles.”…


IRS OKs Dividend Option; Will REITs Use It?

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