The capital structure section of a DST offering filing states how a Trust's acquisition is financed, who holds the debt, and what happens to cash before an investor sees a distribution. It usually runs two to four pages inside the private placement memorandum (PPM), and it often says more about a Trust's actual risk profile than the marketing summary sitting in front of it.
In short
A DST offering capital structure filing discloses the debt terms, the sponsor's position in the capital stack, and whether the Trust distributes income currently or defers it into a zero-coupon structure. Reading one in 2026 means checking the loan-to-value ratio, confirming whether the debt is recourse to the Trust, and matching the distribution language against the offering's stated structure rather than its marketing summary. It is often the shortest section in the filing, and it is the most concrete evidence available before the trustee's powers — fixed by Revenue Ruling 2004-86 — govern the Trust for the rest of its term.
Why this matters
Offering summaries and sponsor overviews are marketing documents. The capital structure section is a disclosure document, and it's where the Trust's actual financial mechanics live: the debt schedule, the reserve requirements, and the order in which cash gets paid out.
An investor comparing several DST offerings inside a 45-day identification window doesn't have time to read every page of every private placement memorandum. The capital structure section is the one to read in full before moving on to due-diligence questions for the sponsor.
Cross-referencing debt terms across active offerings in the Top1031 directory shows the range of structures in the market at any point in 2026, but the specific numbers for any single Trust exist only in that Trust's own filing.
What you'll need
- The Trust's private placement memorandum (PPM) and Form D, both filed with the SEC and searchable on EDGAR
- The Trust's trust agreement, which defines the trustee's powers separately from the offering summary
- A qualified intermediary already engaged, since exchange funds have to move under a qualified intermediary before any DST investment closes
- A basic loan-to-value calculation: total debt divided by total acquisition cost
- Time. Every DST offering filed in 2026 follows a similar disclosure shape, but the footnotes and exhibits take longer to cross-reference than the section itself
Reading a DST offering capital structure filing: the steps
1. Find the "Sources and Uses" table first
It's usually the first table in the section and breaks down where the money comes from — debt, sponsor equity, investor equity — and where it goes: acquisition cost, closing costs, reserves, fees. Check the equity line for investor capital versus sponsor capital contributed before reading anything else. Total sources should equal total uses; if they don't reconcile, that's a filing to flag, not skim past. A common mistake is skipping straight to the headline distribution rate and missing the fee load already baked into the uses side.
2. Identify the debt and its terms
Locate the loan amount, interest rate, term length, and whether the rate is fixed or floating. Then check whether the loan is recourse to the Trust or non-recourse — non-recourse debt limits investor exposure to the equity contributed, while recourse carve-outs expose the Trust itself if specific trigger events occur. Once you have the loan amount and the total acquisition cost, the loan-to-value ratio is a single division. A common mistake is assuming all DST debt is non-recourse; some structures carry recourse carve-outs tied to specific trustee or borrower actions.
3. Locate the master lease or NNN structure feeding the waterfall
Many Trusts lease the property to a master tenant, and the master lease terms — rent, escalations, term length — determine what cash reaches the Trust before debt service or distributions happen. Check whether the master tenant is an affiliate of the sponsor, since that changes who bears vacancy risk versus who's contractually obligated to pay rent regardless. The point is a clear answer to whether distributions come from actual tenant rent or a sponsor-guaranteed lease payment. A common mistake is treating a master-leased property the same as a directly leased multi-tenant property when the risk allocation is different.
4. Determine whether distributions are current-pay or deferred
Some Trusts distribute income monthly or quarterly from operations. Others defer all cash flow into the Trust and pay nothing until a sale or refinance — the zero-coupon model. Read the distribution policy language exactly, not the marketing summary describing "cash flow," since both structures can be described with similar-sounding phrases. Top1031's comparison of zero-coupon versus distributing DST structures walks through how the two differ in practice. A common mistake is treating a filing's distribution language as a guarantee — distributions in a distributing Trust remain discretionary and tied to cash actually available.
5. Find the sponsor's position in the capital stack
Sponsors sometimes co-invest, and they always hold a fee position somewhere in the structure. Check whether sponsor fees are paid from gross revenue, ahead of investor distributions, or from net cash flow, behind them. The point is a clear statement of whether sponsor compensation reduces distributable cash before or after investors get paid. A common mistake is assuming a disclosed sponsor co-investment percentage means sponsor and investor interests are aligned at every point in the waterfall, when fee timing can tell a different story.
6. Confirm the trustee's powers stop where Revenue Ruling 2004-86 says they stop
The trust agreement, not the capital structure narrative, should confirm the trustee cannot renegotiate loan or lease terms, cannot accept new capital contributions after the offering closes, and cannot reinvest sale proceeds — three of the seven restrictions the ruling sets out for a trust to qualify as replacement property. If the capital structure section describes operational flexibility beyond that, such as variable reinvestment or ongoing capital calls, read the trust agreement closely before assuming it's a standard DST. A common mistake is assuming every DST-labeled offering fits the identical fixed structure without checking the actual language against the ruling's limits.
7. Note the exemption type and what it implies about the disclosure
DST offerings raise capital under Regulation D, exempt from registration — most often as a 506(b) or 506(c) offering. A 506(c) offering can generally solicit the public but must take reasonable steps to verify that every purchaser is an accredited investor; a 506(b) offering cannot use general solicitation, typically relies on a pre-existing relationship, and can include up to 35 non-accredited but sophisticated investors alongside accredited ones. Check the cover page or the Form D for the specific exemption claimed. A common mistake is treating exemption type as a signal of Trust quality — it describes how the offering can be marketed and who can buy in, not the soundness of the structure underneath it.
Troubleshooting
- The filing states an interest rate but not a loan-to-value ratio. Divide the disclosed loan amount by the disclosed acquisition cost in the Sources and Uses table. If either figure is missing entirely, the filing is incomplete on this point and worth raising directly with the sponsor.
- Distribution language reads as a percentage without saying whether it's projected or historical. Check the offering's inception date. A Trust that closed within 2026 has no historical distribution record to report, only a projection, and the filing should say so plainly.
- You can't tell if debt is recourse or non-recourse to the Trust. Search the loan documents exhibit, not the summary narrative, for "non-recourse" and "carve-out" language appearing together. The carve-outs list the specific triggers.
- Reserve figures appear as a single lump sum with no breakdown. Check the property management or asset management agreement exhibit, which usually itemizes reserve funding by category: capital expenditures, tenant improvements, leasing commissions.
- The sponsor's fee schedule is scattered across multiple sections instead of consolidated. Build a simple list of every fee mentioned — acquisition fee, asset management fee, disposition fee — and note whether each is paid from gross revenue or net cash flow before comparing across Trusts.
Tools and resources
- SEC EDGAR, for the Form D and any amendments filed on a specific Trust
- The Trust's private placement memorandum and trust agreement, provided directly by the sponsor or broker-dealer
- A qualified intermediary, engaged before any exchange funds move
- The Top1031 directory, for cross-referencing how a Trust's structure compares to other active offerings in 2026
What to do next
Once the capital structure section is mapped for one Trust, use the identical process on the next offering under comparison. Consistency in how you read each filing matters more than any single number pulled from one document in isolation, especially when comparing offerings inside a compressed identification window.
FAQ
Is DST debt recourse or non-recourse to investors?
It depends on the specific Trust. DST debt is generally structured to limit investor exposure to the equity contributed, but recourse carve-outs against the Trust itself appear in many loan agreements, listed in the loan documents exhibit rather than the summary narrative.
What's the difference between a zero-coupon and a distributing DST structure?
A distributing Trust pays income to investors on a current basis, usually monthly or quarterly, while a zero-coupon Trust defers all cash flow until a sale or refinance. The distinction shows up in the distribution policy language, and Top1031's guide comparing the two structures walks through how each behaves over the Trust's term.
What does the loan-to-value ratio tell you about a DST offering?
It states what percentage of the Trust's total acquisition cost is financed with debt versus equity. Divide the disclosed loan amount by the disclosed acquisition cost from the Sources and Uses table to calculate it directly; a higher ratio means less equity cushion ahead of any decline in property value.
What are the seven prohibited trustee powers under Revenue Ruling 2004-86?
They include restrictions such as the trustee's inability to renegotiate lease terms, accept additional capital contributions after the offering closes, or reinvest sale proceeds into a new property. The full list appears in the ruling itself and should match the trust agreement's language, since these restrictions are what allow a DST to qualify as replacement property in a 1031 exchange.
Does a 506(b) or 506(c) exemption change what the capital structure section discloses?
No. The exemption type governs how the offering can be marketed and who can invest — a 506(c) offering can be publicly solicited but every purchaser must be a verified accredited investor, while a 506(b) offering avoids general solicitation and can include up to 35 non-accredited sophisticated investors. Neither changes the Sources and Uses breakdown, debt terms, or distribution language the section has to disclose; check the cover page or Form D for which exemption applies.
One last thing
The capital structure section is often the shortest part of a DST offering filing, sometimes under three pages in a document that runs well past a hundred — and it changes the least once the offering closes, since the same Revenue Ruling 2004-86 restrictions that define a DST also freeze most of the structure for the life of the Trust. Absent a refinancing at loan maturity, the debt terms and distribution language a filing shows in 2026 are close to what will still be there in year five.