Have you ever wondered, “Why do REITs pay such high dividends—and how often are they required to pay them?”
It’s one of the main reasons people invest in real estate investment trusts. But behind those generous payouts are specific legal requirements that shape how much REITs must distribute and when. Understanding these rules can help you make more informed investment decisions, especially if you’re focused on consistent income.
Introduction: The power of steady distributions
REITs are popular among income-seeking investors, particularly in the Arab world, where real estate is seen as a safe and stable asset. Whether listed on the Saudi Stock Exchange, Dubai Financial Market, or Egypt’s EGX, REITs offer a regulated way to earn recurring income from properties.
But REITs don’t distribute dividends simply because they want to. In most jurisdictions, they’re required by law to distribute a minimum percentage of their earnings to maintain their REIT status and avoid corporate income tax. This unique structure is what makes them different from traditional real estate companies or corporations.
Why are REITs required to distribute income?
The REIT model was designed to promote real estate investment while protecting investors from double taxation. In a normal company, profits are taxed at the corporate level, and then shareholders are taxed again when dividends are paid. However, REITs receive tax advantages by distributing most of their income directly to investors.
In most countries, including the U.S., Saudi Arabia, and the UAE, REITs must distribute at least 90% of their taxable income to shareholders. This makes them pass-through entities—meaning the majority of profits are passed on to the investor and taxed only once at the individual level.
The result is a consistent income stream for investors, but also a limitation: REITs must rely on external funding to grow because they can’t retain much profit.
Distribution requirements by region
REIT rules are similar around the world, but each country has its regulations. Here’s how the minimum distribution requirements work in some of the most active REIT markets.
United States
REITs in the U.S. must distribute at least 90% of their taxable income each year. Many go beyond that, paying closer to 100% to remain competitive. Dividends are typically paid quarterly or monthly.
Saudi Arabia
REITs listed on the Saudi Stock Exchange are regulated by the Capital Market Authority (CMA). They are required to distribute at least 90% of their net income after expenses. Most Saudi REITs distribute income either semi-annually or quarterly, depending on their policies.
United Arab Emirates
UAE REITs operate under various frameworks depending on whether they’re domiciled in Dubai, Abu Dhabi, or the DIFC. Distribution requirements usually follow the international standard of 80–90%. Some UAE REITs pay semi-annually, while others follow a quarterly schedule.
Egypt
REITs are still relatively new in Egypt, and regulations are developing. However, most Egyptian REITs are required to distribute a significant portion of their income to qualify as funds. The exact percentage can vary by structure, but transparency and regulatory oversight are gradually increasing.
When and how are dividends paid?
The frequency of dividend payments depends on each REIT’s internal policies and local regulations. The most common schedules are:
- Quarterly: Preferred in the U.S. and some UAE REITs
- Semi-annually: Common in Saudi Arabia and other GCC markets
- Annually: Used by smaller or emerging REITs
- Monthly: Less common, but used by retail-oriented REITs for cash flow investors
Each REIT publishes an official dividend calendar, which includes the ex-dividend date (the cutoff to qualify for the dividend), the record date (when ownership is confirmed), and the payment date (when the dividend is sent to investors).
As an investor, understanding these dates is essential if you rely on dividends for income planning.
How are dividend amounts calculated?
REITs are required to distribute a percentage of their taxable income—not their total earnings. This means the amount available for distribution depends on factors like:
- Rental income and lease terms
- Operating and administrative expenses
- Interest payments on debt
- Depreciation and amortization
- Gains or losses from asset sales
A REIT might own valuable properties and earn steady rental income, but if its taxable income is reduced due to high expenses or debt payments, the dividend may be lower than expected.
On the other hand, some REITs distribute more than 90% to attract investors and maintain their stock price, especially if they are in competitive or growing markets.
What happens if a REIT doesn’t meet the minimum?
If a REIT fails to distribute the required minimum, the consequences can be severe. It may lose its REIT status, which means it would be treated like a regular corporation—and subject to corporate taxes on its income. This would reduce the amount available to shareholders and damage the REIT’s market reputation.
In some jurisdictions, regulators may also impose penalties or require the REIT to make up the shortfall within a certain period. Temporary exceptions might be granted during extraordinary events (such as the COVID-19 pandemic), but the obligation usually remains.
For this reason, most REITs are very careful to meet or exceed the minimum distribution requirements every year.
What this means for investors
Understanding these rules can help you evaluate the income stability of a REIT. Here’s what to consider when reviewing a REIT’s dividend performance:
Consistency of payments
REITs that maintain a steady payout ratio, even during market downturns, may indicate strong management and a solid property portfolio.
Dividend payout ratio
Check how much of the REIT’s income is being distributed. A very high payout ratio (close to 100%) could signal that the REIT has little room to reinvest or absorb losses.
Debt levels
A REIT with high debt might struggle to maintain distributions if rental income drops. Reviewing its balance sheet and interest coverage can give insight into sustainability.
Tax treatment
In most Arab countries, REIT dividends are tax-free for individuals, which makes them attractive to local investors. However, if you’re investing internationally, be aware of withholding taxes or special tax forms that may apply.
Growth vs. income strategy
Some REITs retain a portion of their income to reinvest in new projects or development. These REITs may offer lower current dividends but higher long-term growth. Others prioritize maximum income now, with limited growth potential. Choose based on your goals.
REIT distributions in Arab markets: special considerations
In Saudi Arabia and the UAE, REIT markets are expanding, and the dividend model is a major selling point for investors seeking halal income. However, many REITs are relatively new, with short track records.
This means it’s important to evaluate:
- How long the REIT has been distributing income
- The sustainability of its rental income sources
- Whether the REIT owns diversified assets or depends heavily on one sector (like hospitality or retail)
Some REITs may delay or reduce distributions due to economic pressures or management decisions. Always read quarterly updates and regulatory disclosures to stay informed.
In Egypt, as REIT regulations develop, dividend expectations should be based on each fund’s prospectus. Since transparency may still be limited compared to the GCC, it’s especially important to review financial reports before investing.
Final thoughts: know the rules, protect your income
REITs offer a powerful way to earn income from real estate without owning physical properties. The legal requirement to distribute most of their taxable income makes them ideal for investors seeking consistent returns.
But not all REITs are the same. Understanding how the distribution rules work—when dividends are paid, how much is required, and what affects payout amounts—can help you select stronger, more reliable investments.
If you’re investing in REITs across Saudi Arabia, the UAE, or Egypt, take the time to study each REIT’s dividend policy. Ask the right questions, review the payout history, and don’t rely on yield alone. The more informed you are, the more confidently you can build wealth through real estate.
