On May 4, 2020, the U.S. Department of Treasury and the Internal Revenue Service (the "IRS") released guidance that temporarily reduces the minimum amount of cash that is required to be distributed by real estate investment trusts ("REITs") to their shareholders for purposes of satisfying certain distribution requirements. In particular, the temporary guidance set forth in Revenue Procedure 2020-19 provides that distributions which are made by publicly offered REITs and in which shareholders can elect to receive stock or cash will qualify as dividends for purposes of the dividends-paid deduction if the minimum amount of cash that shareholders may receive is equal to at least 10% of the total distribution. As such, a publicly offered REIT may temporarily make a distribution to its shareholders consisting of 90% stock and 10% cash and still have such distribution qualify for purposes of the dividends-paid distribution. In sum, the temporary guidance released by the IRS will allow publicly offered REITs to satisfy their distribution requirements in a manner that preserves their liquidity.

In order to maintain its favorable tax treatment (which generally includes no entity-level taxation), a REIT must make annual distributions to its shareholders of at least 90% of its taxable income. The IRS previously issued guidance in 2017 (Revenue Procedure 2017-45) which established a safe harbor for publicly offered REITs to make stock distributions that would qualify for the dividends-paid deduction and thus enable a REIT to satisfy its distribution requirements. Under the safe harbor, a distribution made by a publicly offered REIT and in which the shareholders could elect to receive stock or cash would qualify for purposes of such REIT's distribution requirement if the minimum amount of cash that shareholders could receive was equal to at least 20% of the total distribution. As noted above, Revenue Procedure 2020-19 modifies the prior 2017 guidance by temporarily reducing the minimum amount of cash that is required to be distributed by a publicly offered REIT from 20% to 10% (and thus temporarily increasing the amount of stock that can be distributed from 80% to 90%).

In the released guidance, the IRS expressly acknowledged the need that REITs currently possess for enhanced liquidity during this period of economic disruption caused by the COVID-19 pandemic. While the temporary guidance provides much needed relief by permitting a higher percentage of stock to be used in making distributions, the guidance only applies to distributions declared by a publicly offered REIT on or after April 1, 2020, and on or before December 31, 2020. For such purposes, a "publicly offered REIT" generally means a REIT that is required to file annual and periodic reports with the Securities and Exchange Commission.