Delaware Statutory Trusts (DSTs) are popular not only for their passive nature and tax-deferral benefits but also for their stable cash flow through regular distributions of net revenue. As an investor, you receive income based on the agreed-upon frequency—usually monthly or quarterly.
The DST cash flow distribution schedule may seem like a minor detail in the grand scheme of things, but these setups are important considerations for DST investing, as they help with financing planning and assessing the overall performance of the underlying properties. Below, Realized 1031 goes in-depth regarding DST distribution schedules, timing factors, and what these structures can tell you about the investment.
Most standard DSTs offer either quarterly or monthly income distributions. There are ones that offer customized schedules, but this arrangement is rare. While the difference between quarterly and monthly distributions seems minor, it has a significant impact on investors. The distribution schedule influences how investors handle liquidity, budgeting, reinvestment timing, and even perceived portfolio stability.
Some investors depend on DST distributions for income, especially retirees or those using passive income to supplement daily expenses. For these individuals, the frequency of distributions becomes crucial, as it directly affects budgeting. Monthly income is preferred in such cases, since it replicates a paycheck or annuity. Meanwhile, quarterly distributions are less frequent but provide larger payouts.
Some investors might want to reinvest their DST earnings into other investments. For those who prefer faster deployment of capital for another DST, REIT, or stocks, the monthly schedule is typically the ideal choice. Meanwhile, quarterly distributions allow you to gain more capital for more meaningful investment decisions.
Since DST distributions are treated as income, they are subject to taxation. Knowing when the DST will send the income helps investors anticipate taxable events and coordinate with their broader tax strategy. For example, you can choose quarterly distributions to help time charitable contributions or tax-loss harvesting strategies by the end of each quarter.
Understanding cash flow distribution schedules can go beyond your personal financial planning needs. This knowledge can also help you assess the current state of the DST and the underlying properties. If you know the frequency and are starting to see delays or inconsistencies, then this could indicate operational issues and other financial stressors that affect the value of the investment.
DSTs are required to distribute most of their revenue on a regular basis. However, the sponsor’s rationale regarding the schedule to follow depends on several factors.
These first two factors help set the distribution schedule you’ll see on the private placement memorandum (PPM). However, there are other considerations that make an impact on the distribution schedule while the DST is already operational. These include:
We’ve mentioned how monitoring DST cash flow distributions can help investors gain insight into the health of the investment. Here are specific items you can review to help you see the full picture.
As you analyze these elements, you gain insight into the actual cash flow frequency as well as the health and sustainability of those distributions.
DST cash flow distribution frequency may seem like a minor detail, since you’re receiving cash no matter what, but these schedules impact various aspects of your investment and overall financial management plans. Plus, the frequency (and any delays) provides insights into the health of the DST. As such, knowing the cash flow schedule is a crucial aspect of DST investing, helping you set expectations and maintain confidence in the investment.
Sources:
https://www.investopedia.com/terms/o/offeringmemorandum.asp
https://smartasset.com/investing/delaware-statutory-trusts-dsts