REIT Investing · Updated 2026-10-25
How to Analyze a REIT: A Practical Investor Checklist
A REIT is more than a dividend yield. A useful analysis connects recurring property cash flow, balance-sheet risk, lease durability, and the price paid for each dollar of AFFO.
Start with the property engine
Identify the REIT's property type, tenant base, geographic exposure, occupancy, and same-store net operating income growth. The business model determines how quickly rents can reset and how sensitive cash flow is to a recession.
Use AFFO and P/FFO together
FFO is a useful starting point, but AFFO is usually closer to recurring distributable cash flow after recurring capital expenditures. Compare the share price with FFO or AFFO per share, then compare the multiple with direct sector peers.
Test the dividend
Review the payout ratio, dividend history, lease coverage, and management guidance. A high yield is not automatically attractive if it is funded by a stretched payout ratio or weakening property income.
Stress the balance sheet
Check net debt to EBITDA, fixed-rate debt, maturities, secured debt, liquidity, and credit ratings. A maturity wall can turn a modest rate increase into a meaningful AFFO headwind.
Estimate NAV and the margin of safety
A simple NAV framework capitalizes property NOI at a market cap rate, subtracts net debt, and divides by shares outstanding. Test several cap rates instead of treating one estimate as precise.
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Frequently asked questions
What is the most important REIT metric?
There is no single best metric. AFFO per share, the payout ratio, leverage, occupancy, and valuation should be reviewed together.
Is a higher REIT yield better?
Not necessarily. Higher yields can reflect higher operating, balance-sheet, tenant, or valuation risk.