REIT Hidden Liabilities: What FFO Doesn't Tell You About DLR, WELL, and 6 More
Digital Realty has $2.3 billion in construction commitments plus an active SEC investigation. Welltower faces $337 million in put-call acquisition obligations. Standard FFO/AFFO screens miss these entirely. Here's what filing intelligence reveals about 8 major REITs.
REIT Hidden Liabilities: What FFO Doesn't Tell You About DLR, WELL, and 6 More
Last Updated: December 23, 2025 Data Currency: Q3 2025 10-Q filings. DLR, WELL, O, PLD, STAG, VICI, WPC, ADC
TL;DR: Every REIT screener shows FFO, AFFO, and dividend payout ratios. Almost none surface off-balance sheet commitments. Our filing intelligence analysis of 8 major REITs found Digital Realty has $2.3 billion in construction commitments plus an active SEC investigation, while Welltower faces $337 million in put-call acquisition obligations that could become mandatory purchases. Prologis and VICI have the cleanest balance sheets. STAG Industrial improved from 100% payout ratio (2016) to 57% (2025)—the dividend turnaround story no one talks about.
Key Facts (Q3 2025 SEC Filings):
- Digital Realty (DLR): $2.3 billion in construction commitments; active SEC cybersecurity investigation
- Welltower (WELL): $337 million in put-call acquisition obligations; 61% FFO payout ratio
- Prologis (PLD): $0 quantified off-balance sheet exposure; cleanest balance sheet among 8 REITs analyzed
- STAG Industrial (STAG): Payout ratio improved from 100% (2016) to 57% (2025)
- W.P. Carey (WPC): 2023 dividend reset from 80% to 70% AFFO payout after office sector exit
Sources: Company 10-Q filings, SEC EDGAR
Screen REITs with filing intelligence: MetricDuck automatically extracts off-balance sheet commitments, hidden liabilities, and accounting quality signals from SEC filings. Compare these 8 REITs →
Quick Comparison: Off-Balance Sheet Exposure by REIT
| Ticker | Company | Subsector | Off-Balance Exposure | Risk Level | Key Finding |
|---|---|---|---|---|---|
| DLR | Digital Realty | Data Center | $2.3 billion | Moderate | SEC investigation + construction commitments |
| WELL | Welltower | Healthcare | $354 million | Moderate | $337M put-call obligations |
| O | Realty Income | Triple Net | Not quantified | Moderate | Level 3 fair value concerns |
| ADC | Agree Realty | Retail | Not quantified | Moderate | Growing straight-line receivables |
| WPC | W.P. Carey | Diversified | Not quantified | Low | Post-restructuring clean |
| STAG | STAG Industrial | Industrial | $3.2 million | Low | Minimal commitments |
| PLD | Prologis | Industrial | $0 | Low | Clean balance sheet |
| VICI | VICI Properties | Gaming | $0 | Low | Clean balance sheet |
Source: SEC 10-Q filings via MetricDuck Filing Intelligence extraction, December 2025.
The Pattern: Data center and healthcare REITs carry significant off-balance sheet exposure due to capital-intensive growth strategies. Triple-net and gaming REITs have cleaner balance sheets because tenants bear property costs.
Why Standard REIT Screens Miss the Real Risks
Most investors screen REITs using three metrics: FFO yield, AFFO payout ratio, and dividend growth rate. These are necessary but insufficient.
What FFO and AFFO Actually Measure
FFO (Funds From Operations) adjusts GAAP net income for the distortion caused by depreciation. REITs must depreciate buildings even when those buildings appreciate in value. FFO adds back depreciation and subtracts gains from property sales:
FFO = Net Income + Depreciation & Amortization - Gains on Property Sales
AFFO (Adjusted FFO) goes further by subtracting recurring capital expenditures—the money REITs must spend to maintain their properties:
AFFO = FFO - Maintenance CapEx - Straight-Line Rent Adjustments
The Problem: Balance Sheet Blindness
FFO and AFFO tell you about recurring cash flow. They don't tell you about:
- Construction commitments that will drain future cash
- Put-call agreements that could force property acquisitions
- Subsidiary guarantees for off-balance sheet debt
- Level 3 fair value assets where management controls the valuation
- SEC investigations with unknown financial exposure
These appear only in 10-Q footnotes—specifically "Commitments and Contingencies" and "Off-Balance Sheet Arrangements." Standard screeners don't parse this data.
Digital Realty (DLR) Hidden Liabilities: $2.3 Billion in Off-Balance Sheet Commitments
Digital Realty (DLR) is the poster child for REIT hidden exposure. The AI boom has driven massive data center expansion, but that growth comes with commitments.
Off-Balance Sheet Findings
From Digital Realty's Q3 2025 10-Q, our filing intelligence extracted:
Critical Findings from SEC Filing:
-
$2.3 billion in construction commitments — "Significant open commitments related to construction contracts totaling $2.3 billion"
-
Active SEC investigation — "SEC investigation into cybersecurity disclosures poses potential costs and penalties"
The $2.3 billion represents future cash outflows for data center construction that don't appear on the balance sheet until funds are disbursed.
Why This Matters
Digital Realty's market cap is approximately $55 billion. The $2.3 billion in construction commitments represents ~4% of market cap in off-balance sheet obligations.
Add the SEC cybersecurity investigation—for a company whose entire value proposition is secure data hosting—and you have a reputational risk that's difficult to quantify.
The Growth-Risk Trade-off: DLR reported 21% FFO growth and 50%+ of bookings tied to AI workloads. The question is whether the off-balance sheet exposure is priced in.
See the full analysis: MetricDuck's Filing Intelligence extracted 47 data points from DLR's Q3 2025 10-Q, including the construction commitments and SEC investigation disclosure. View DLR Filing Intelligence →
Welltower (WELL) Off-Balance Sheet Analysis: $337M Put-Call Obligations
Welltower (WELL) is the healthcare REIT success story of 2025—24% revenue growth, strong senior housing NOI, aging population tailwinds. But the 10-Q reveals hidden exposure.
The Put-Call Agreement
From Welltower's Q3 2025 10-Q:
Direct Quote from SEC Filing:
"We have entered into put-call agreements with third parties in conjunction with certain development projects. Under these agreements, we can initiate a call right or the third party can initiate a put right upon certain conditions being met, which would result in the acquisition of the related property by us, for which we currently have no ownership interest."
"If all conditions had been met under these agreements as of September 30, 2025, and the put or call rights for each investment had been triggered, the amount payable by us to acquire these properties would have been $337,049,000."
— Welltower 10-Q, Q3 2025
What This Means
Welltower has $337 million in contingent acquisition obligations for properties it doesn't currently own. If third parties exercise their put rights, Welltower must purchase these properties.
Additionally, the filing disclosed:
- $17.3 million in contingent purchase obligations for capital improvements
- Total off-balance exposure: $354 million
Relative to Welltower's $38.8 billion equity, this represents ~0.9%—material but manageable. The concern is that this exposure doesn't appear in FFO, AFFO, or standard payout ratio screens.
The Growth Justification
Despite hidden liabilities, Welltower's fundamentals justify premium valuation:
| Metric | WELL (Q3 2025) |
|---|---|
| Revenue (TTM) | $9.91 billion |
| FFO (TTM) | $2.93 billion |
| Dividends Paid (TTM) | $1.79 billion |
| FFO Payout Ratio | 61% |
| Revenue Growth | ~24% YoY |
A 61% FFO payout ratio is healthy by industry standards. The $354 million off-balance exposure, while material, represents future growth investments rather than hidden debt.
Explore Welltower's filings: Our system detected the put-call obligations, contingent purchase commitments, and 2 other off-balance sheet items. View WELL Filing Intelligence →
Prologis (PLD) and VICI Properties: The Clean Balance Sheets
Not all REITs carry significant off-balance sheet risk. Two stand out for clean disclosure.
Prologis (PLD)
Prologis operates 1.2 billion square feet of industrial logistics real estate globally. Despite massive scale, our filing intelligence found:
- Off-balance sheet exposure: $0 quantified
- Risk level: Low
- Key strength: Conservative leverage, strong lease rollovers
Prologis's triple-net industrial model means tenants bear property costs. The company doesn't need to guarantee subsidiary debt or enter complex acquisition arrangements.
VICI Properties (VICI)
VICI owns gaming properties including Caesars Palace and MGM Grand. Filing intelligence found:
- Off-balance sheet exposure: $0 quantified
- Risk level: Low
- Key strength: $3.1 billion liquidity, contractual rent escalators
VICI's triple-net gaming leases provide predictable cash flow without capital-intensive development commitments.
Compare the clean REITs: View Prologis and VICI side-by-side with their industrial and gaming peers. Compare PLD vs VICI →
STAG Industrial (STAG): The Dividend Turnaround Story
STAG Industrial (STAG) offers a case study in dividend sustainability improvement that doesn't appear in point-in-time screens.
The Trajectory
| Year | FFO Payout Ratio | Status |
|---|---|---|
| 2016 | ~100% | Unsustainable |
| 2020 | ~80% | Improving |
| 2025 | 57% | Conservative |
STAG went from paying out essentially all FFO to retaining 43% for growth and cushion. This trajectory matters more than the current ratio alone.
Off-Balance Sheet Profile
- Exposure: $3.2 million (minimal)
- Risk level: Low
- Key risk: Geopolitical/trade policy exposure to industrial demand
See STAG's trajectory: Compare STAG Industrial with other monthly dividend REITs. View STAG vs O vs ADC →
W.P. Carey (WPC) Dividend Cut: A Cautionary Tale
W.P. Carey (WPC) demonstrates what happens when high payout ratios meet sector headwinds.
The 2023 Dividend Reset
WPC operated at 80% AFFO payout with significant office exposure. When office fundamentals collapsed post-COVID, the company:
- Exited the office sector entirely
- Reset the dividend from 80% to 70% AFFO payout
- Took significant impairment charges
The Recovery
By Q3 2025, WPC shows improvement:
- 2025 AFFO guidance: $4.93-$4.99
- Dividend now growing 4% annually
- Off-balance sheet profile: Clean post-restructuring
Lesson: High payout ratios provide less buffer when sector headwinds emerge. WPC's dividend cut was avoidable with a more conservative payout policy.
FFO Payout Ratio Benchmarks by REIT Subsector
Different REIT subsectors have different capital intensity, which affects appropriate payout ratios.
| Subsector | Typical FFO-AFFO Gap | Safe Payout Range | Example |
|---|---|---|---|
| Triple Net | Small (minimal capex) | 70-80% | Realty Income, Agree Realty |
| Gaming | Small (NNN structure) | 70-80% | VICI Properties |
| Industrial | Moderate (TI allowances) | 60-75% | Prologis, STAG |
| Healthcare | Variable (operator vs NNN) | 60-75% | Welltower |
| Data Center | Large (high maintenance) | 50-65% | Digital Realty |
| Diversified | Variable | 65-75% | W.P. Carey |
Data center REITs require lower payout ratios because cooling systems, power infrastructure, and technology refresh cycles demand significant recurring investment.
REIT Due Diligence Checklist: What to Screen For
Based on this analysis, REIT due diligence should include:
Standard Metrics (Necessary but Insufficient)
- FFO/AFFO per share and growth rate
- Payout ratio (target: subsector-appropriate)
- Debt/EBITDA (target: below 6.0x)
- Interest coverage ratio
Filing Intelligence Additions
- Construction commitments — Future cash drain
- Put/call agreements — Contingent acquisitions
- Subsidiary guarantees — Off-balance sheet debt
- Level 3 fair value assets — Management-controlled valuations
- SEC investigations/litigation — Unknown exposure
- Straight-line rent receivables — Revenue recognition timing
The 8-REIT Summary
| Ticker | FFO Payout | Off-Balance Risk | Overall Assessment |
|---|---|---|---|
| STAG | 57% | Low | Conservative, improving |
| PLD | 65-70% | Low | Growth + clean balance |
| VICI | 75% | Low | Stable, predictable |
| WELL | 61% | Moderate | High growth, monitor put-calls |
| ADC | 72% | Moderate | Strong fundamentals |
| O | 75% | Moderate | Mature, Level 3 concerns |
| WPC | 70% | Low | Post-reset recovery |
| DLR | 65% | High | Growth + SEC + $2.3B commits |
Methodology and Data Sources
This analysis used MetricDuck's Filing Intelligence system to extract:
- Financial metrics from SEC XBRL filings (FFO, AFFO, NOI, dividends paid)
- Hidden liabilities from 10-Q footnotes (commitments, contingencies)
- Risk factors from Item 1A disclosures
- Accounting quality signals from financial statement analysis
Filing Sources (Q3 2025 10-Q):
- DLR SEC Filings
- WELL SEC Filings
- O SEC Filings
- PLD SEC Filings
- STAG SEC Filings
- VICI SEC Filings
- WPC SEC Filings
- ADC SEC Filings
Limitations:
- AFFO calculations use estimated maintenance capex; company-reported AFFO may differ
- Off-balance sheet exposure represents point-in-time disclosure; commitments change quarterly
- SEC investigation outcomes are inherently unpredictable
Bottom Line
FFO and AFFO are essential REIT metrics, but they're insufficient for due diligence. Off-balance sheet commitments, contingent obligations, and regulatory investigations create risks that don't appear in standard screens.
Key Findings:
- Digital Realty carries the highest hidden risk — $2.3B construction commits + SEC investigation
- Welltower's $337M put-call exposure is material but manageable given 61% payout and growth
- Prologis and VICI have the cleanest profiles — minimal off-balance exposure
- STAG's payout trajectory (100% → 57%) demonstrates dividend sustainability improvement
- W.P. Carey's 2023 reset shows the danger of high payout + sector headwinds
Before investing in any REIT, read the "Commitments and Contingencies" footnote in the 10-Q—or use MetricDuck's Filing Intelligence to extract these automatically for any company in our database.
Try Filing Intelligence on Any REIT
We analyzed 8 REITs in this article. MetricDuck's Filing Intelligence covers 10,000+ companies with automatic extraction of:
- Off-balance sheet commitments — Construction, acquisition, and guarantee obligations
- Hidden liabilities and contingencies — Put-call agreements, Level 3 fair values
- Accounting quality signals — Revenue recognition, capitalization policies
- SEC investigation disclosures — Regulatory risk exposure
Start exploring: View Realty Income (O) Filing Intelligence → — the industry's dividend benchmark with 664 consecutive monthly dividends.
Or dive into the companies with material hidden exposure:
- Digital Realty (DLR) → — $2.3B construction commitments + SEC investigation
- Welltower (WELL) → — $337M put-call obligations
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This article is part of our comprehensive Earnings Quality Hub, which covers cash flow verification, accounting red flags, and quality screening frameworks.
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