Analyzing a REIT requires abandoning traditional corporate valuation metrics like net income or P/E ratios. Accounting depreciation systematically understates real estate values, rendering net income artificially low. Sophisticated investors rely on the following specialized metrics:
Calculated by adding real estate depreciation and amortization back to net income, and subtracting gains from property sales. FFO is the standard baseline measure of operating performance.
Calculated by subtracting recurring capital expenditures (maintenance, tenant improvements, leasing commissions) from FFO. AFFO represents the actual distributable cash flow available to cover the dividend payout.
The estimated market value of the REIT’s underlying physical portfolio, net of liabilities. Comparing share prices to NAV reveals whether the REIT trades at an arbitrage premium or discount.
High WALE shields cash flow during recessions. Property types with short leases (e.g., self-storage or apartments) exhibit high sensitivity to inflation, as landlords can raise rents immediately, whereas long-term triple-net lease REITs (e.g., medical offices) suffer real cash flow contraction during inflationary cycles.
Review these metrics in corporate filings via the SEC’s EDGAR database: SEC EDGAR Filing Search.