Cohen & Steers Quality Income Realty Fund, Inc. (RQI) Notification of Sources of Distribution Under Section 19(a)
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Insights
The announcement from Cohen & Steers Quality Income Realty Fund, Inc. regarding its distribution sources is a significant piece of information for investors and market analysts. The distribution, which is comprised entirely of net realized long-term capital gains, indicates that the fund is generating returns that qualify for potentially lower tax rates for investors. This can be an attractive feature, as it suggests that the fund is successfully executing its investment strategy, particularly in realizing gains from investments held for more than one year.
However, the absence of net investment income and short-term capital gains in the distribution composition could raise questions about the fund's current income-generating capabilities. Investors might be concerned about the fund's ability to sustain its distributions through income alone without eroding capital. The reliance on long-term capital gains could imply that the fund is selling assets to maintain its distribution policy, which may not be sustainable in the long run.
Moreover, the flexibility of the managed distribution policy to amend, terminate, or suspend at any time introduces an element of uncertainty. Investors should be aware of the potential impact on the fund's share price should there be a change in the distribution policy. The return of capital component, while not taxable, effectively reduces an investor's cost basis, which could have tax implications when the shares are sold.
From a tax perspective, the fact that the fund's distributions are entirely categorized as net realized long-term capital gains is notable. Long-term capital gains are subject to different tax treatment compared to ordinary income or short-term capital gains, often taxed at a lower rate for individual investors. This could be advantageous for tax-sensitive investors seeking to minimize their tax liability on investment income.
However, the tax implications of the return of capital should not be overlooked. While it is not immediately taxable, it reduces the shareholder's tax basis in the fund's shares, which could result in higher capital gains taxes upon the sale of the shares. This underscores the importance of shareholders understanding the tax characteristics of their distributions, especially as they can change at the end of the year when the final tax characteristics are determined.
Investors should also be aware of the potential recharacterization of distributions from the fund's investments in REITs. Depending on the dividends reported by the REITs after the year-end, what is initially considered a return of capital could later be reclassified as capital gains, altering the anticipated tax consequences.
The managed distribution policy of Cohen & Steers Quality Income Realty Fund, Inc. aims to provide a consistent return to shareholders, which can be appealing to those seeking regular income streams. The focus on real estate investment trusts (REITs) within the fund's portfolio is particularly relevant, given the unique nature of REIT dividends and the potential for income as well as capital appreciation.
However, the market conditions and the performance of the real estate sector can significantly impact the fund's ability to maintain its distributions. A downturn in the real estate market could affect the fund's ability to realize long-term capital gains and could lead to a reduction in distributions or a shift towards a higher return of capital percentage. This could potentially impact the fund's attractiveness to income-focused investors and affect the fund's share price.
Investors should also consider the fund's past performance and distribution history, as well as the overall health of the real estate market, to assess the sustainability of the fund's distribution policy. The fund's reliance on long-term capital gains for distributions in the current period could suggest a robust real estate market in the past, but it does not necessarily indicate how the fund will perform in the future.
In December 2012, the Fund implemented a managed distribution policy in accordance with exemptive relief issued by the Securities and Exchange Commission. The managed distribution policy seeks to deliver the Fund's long-term total return potential through regular monthly distributions declared at a fixed rate per common share. The policy gives the Fund greater flexibility to realize long-term capital gains throughout the year and to distribute those gains on a regular monthly basis to shareholders. The Board of Directors of the Fund may amend, terminate or suspend the managed distribution policy at any time, which could have an adverse effect on the market price of the Fund's shares.
The Fund's monthly distributions may include long-term capital gains, short-term capital gains, net investment income and/or return of capital for federal income tax purposes. Return of capital includes distributions paid by the Fund in excess of its net investment income and net realized capital gains and such excess is distributed from the Fund's assets. A return of capital is not taxable; rather, it reduces a shareholder's tax basis in his or her shares of the Fund. In addition, distributions from the Fund's investments in real estate investment trusts (REITs) may later be characterized as capital gains and/or a return of capital, depending on the character of the dividends reported to the Fund after year end by REITs held by the Fund. The amount of monthly distributions may vary depending on a number of factors, including changes in portfolio and market conditions.
At the time of each monthly distribution, information will be posted to cohenandsteers.com and mailed to shareholders in a concurrent notice. However, this information may change at the end of the year because the final tax characteristics of the Fund's distributions cannot be determined with certainty until after the end of the calendar year. Final tax characteristics of all of the Fund's distributions will be provided on Form 1099-DIV, which is mailed after the close of the calendar year.
The following table sets forth the estimated amounts of the current distribution and the cumulative distributions paid this fiscal year-to-date from the sources indicated. All amounts are expressed per common share.
DISTRIBUTION ESTIMATES | January 2024 | YEAR-TO-DATE (YTD) January 31, 2024* | ||
Source | Per Share | % of Current | Per Share | % of 2024 |
Net Investment Income | 0.00 % | 0.00 % | ||
Net Realized Short-Term Capital Gains | 0.00 % | 0.00 % | ||
Net Realized Long-Term Capital Gains | 100.00 % | 100.00 % | ||
Return of Capital (or other Capital Source) | 0.00 % | 0.00 % | ||
Total Current Distribution | 100.00 % | 100.00 % | ||
You should not draw any conclusions about the Fund's investment performance from the amount of this distribution or from the terms of the Fund's managed distribution policy. The amounts and sources of distributions reported in this Notice are only estimates, are likely to change over time, and are not being provided for tax reporting purposes. The actual amounts and sources of the amounts for accounting and tax reporting purposes will depend upon the Fund's investment experience during the remainder of its fiscal year and may be subject to changes based on tax regulations. The amounts and sources of distributions year-to-date may be subject to additional adjustments.
*THE FUND WILL SEND YOU A FORM 1099-DIV FOR THE CALENDAR YEAR THAT WILL TELL YOU HOW TO REPORT THESE DISTRIBUTIONS FOR FEDERAL INCOME TAX PURPOSES.
The Fund's Year-to-date Cumulative Total Return for fiscal year 2023 (January 1, 2023 through December 31, 2023) is set forth below. Shareholders should take note of the relationship between the Year-to-date Cumulative Total Return with the Fund's Cumulative Distribution Rate for 2024. In addition, the Fund's Average Annual Total Return for the five-year period ending December 31, 2023 is set forth below. Shareholders should note the relationship between the Average Annual Total Return with the Fund's Current Annualized Distribution Rate for 2023. The performance and distribution rate information disclosed in the table is based on the Fund's net asset value per share (NAV). The Fund's NAV is calculated as the total market value of all the securities and other assets held by the Fund minus the total liabilities, divided by the total number of shares outstanding. While NAV performance may be indicative of the Fund's investment performance, it does not measure the value of a shareholder's individual investment in the Fund. The value of a shareholder's investment in the Fund is determined by the Fund's market price, which is based on the supply and demand for the Fund's shares in the open market.
Fund Performance and Distribution Rate Information:
Year-to-date January 1, 2023 to December 31, 2023 | |
Year-to-date Cumulative Total Return1 | 15.59 % |
Cumulative Distribution Rate2 | 0.61 % |
Five-year period ending December 31, 2023 | |
Average Annual Total Return3 | 10.56 % |
Current Annualized Distribution Rate4 | 7.36 % |
1. | Year-to-date Cumulative Total Return is the percentage change in the Fund's NAV over the year-to-date time period including distributions paid and assuming reinvestment of those distributions. |
2. | Cumulative Distribution Rate for the Fund's current fiscal period (January 1, 2024 through January 31, 2024) measured on the dollar value of distributions in the year-to-date period as a percentage of the Fund's NAV as of December 31, 2023. |
3. | Average Annual Total Return represents the compound average of the Annual NAV Total Returns of the Fund for the five-year period ending December 31, 2023. Annual NAV Total Return is the percentage change in the Fund's NAV over a year including distributions paid and assuming reinvestment of those distributions. |
4. | The Current Annualized Distribution Rate is the current fiscal period's distribution rate annualized as a percentage of the Fund's NAV as of December 31, 2023. |
Investors should consider the investment objectives, risks, charges and expense of the Fund carefully before investing. You can obtain the Fund's most recent periodic reports, when available, and other regulatory filings by contacting your financial advisor or visiting cohenandsteers.com. These reports and other filings can be found on the Securities and Exchange Commission's EDGAR Database. You should read these reports and other filings carefully before investing.
Shareholders should not use the information provided here in preparing their tax returns. Shareholders will receive a Form 1099-DIV for the calendar year indicating how to report Fund distributions for federal income tax purposes.
Website: https://www.cohenandsteers.com
Symbol: (NYSE: CNS)
About Cohen & Steers. Cohen & Steers is a leading global investment manager specializing in real assets and alternative income, including real estate, preferred securities, infrastructure, resource equities, commodities, as well as multi-strategy solutions. Founded in 1986, the firm is headquartered in
Forward-Looking Statements
This press release and other statements that Cohen & Steers may make may contain forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which reflect the company's current views with respect to, among other things, its operations and financial performance. You can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates," or the negative versions of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties.
Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. The company undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
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SOURCE Cohen & Steers, Inc.
FAQ
What is the ticker symbol for Cohen & Steers Quality Income Realty Fund, Inc.?
What is the managed distribution policy implemented by the Fund?
How does the managed distribution policy affect shareholders?
What types of distributions may shareholders receive?
What are the tax implications of return of capital distributions?
