Distribution Yield

Distribution yield is the annualized cash distribution an investment pays out, expressed as a percentage of the amount invested. For a Delaware Statutory Trust or non-traded REIT, it is typically calculated as the annual cash distributions per unit divided by the offering price per unit. Distribution yield is one of the headline figures sponsors advertise, but investors should interpret it carefully because it is not the same as total return or profit. A distribution can include a return of the investor's own capital rather than income earned by the property, in which case a portion of the "yield" is simply giving back principal, not generating it. Distributions can also exceed the property's actual net operating cash flow if the sponsor funds them from reserves or borrowing, which is not sustainable. Because real estate distributions often carry favorable tax characteristics, part may be treated as return of capital that is not immediately taxed but reduces basis, the after-tax yield can differ from the headline number. Distribution yield also says nothing about appreciation or the eventual sale price, which together with distributions determine total return. A higher advertised yield can signal higher risk or a return of capital rather than superior performance, so investors should examine the source and sustainability of distributions disclosed in the private placement memorandum, not the headline rate alone.