RENT Magazine Q2'25

DISCLOSURE OF MARKUPS IN PRIVATE PLACEMENT MEMORANDUMS (PPMS): While the fine print of the Private Placement Memorandum (PPM) discloses these markups, the estimated use of proceeds page typically omits them. This omission makes these fees harder to track and understand, especially compared to traditional Delaware Statutory Trust (DST) offerings, which usually disclose all costs directly on the PPM’s estimated use of proceeds page. This discrepancy can lead to misaligned expectations and increased risks over time for 721 UPREIT DST investors. ASSESSING DEBT LEVELS AND INTEREST RATE EXPOSURE It’s crucial to examine the REIT’s debt profile. Investors need to know the total debt and how much of that debt is floating or adjustable. A heavy reliance on adjustable-rate debt can expose the REIT to interest rate volatility, increasing the risk of higher future costs and impacting overall financial stability. Many 721 UPREIT opportunities are tied to REITs that carry substantial borrowings, while other available opportunities remain debt-free with no loans. Investors must decide whether they are more comfortable with large amounts of debt (many variable-rate debt) or with a debt- free opportunity with no financial leverage risks.

DIVIDEND COVERAGE AND THE TRUE YIELD – A CRITICAL MEASURE FOR 721 EXCHANGE UPREIT INVESTORS

A key indicator of a REIT’s financial health is its dividend coverage, measured by Adjusted Funds from Operations (AFFO). Suppose the AFFO coverage is less than 100%. In that case, it means the REIT is not fully supporting its operational income dividend and instead relies on borrowings or fresh investor capital. This practice raises a red flag because it introduces systemic risk: reliance on external funding to sustain a portion of the dividend rather than genuine operating performance jeopardizes the dividend’s sustainability. Investors must avoid making critical decisions based solely on their relationship with a financial advisor or the REIT company’s glossy brochures and impressive size and scale. Instead, they should base their decisions on the REIT’s actual financial performance.

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