REIT Metrics Cheat Sheet
Core REIT Valuation Metrics
| Metric | Formula | What It Tells You |
|---|---|---|
| FFO (Funds From Operations) | Net Income + Depreciation + Amortization − Gains on Sales | The REIT equivalent of earnings — strips out non-cash depreciation distortions |
| AFFO (Adjusted FFO) | FFO − Recurring CapEx − Straight-Line Rent Adjustments | More conservative measure of sustainable cash flow; better proxy for dividend capacity |
| P/FFO | Share Price ÷ FFO per Share | The REIT version of P/E ratio — primary valuation multiple |
| P/AFFO | Share Price ÷ AFFO per Share | Stricter valuation multiple that accounts for maintenance CapEx |
| NAV (Net Asset Value) | Fair Market Value of Properties − Total Debt | What the REIT’s real estate is actually worth — tells you if shares trade at premium or discount |
| Premium/Discount to NAV | (Share Price − NAV per Share) ÷ NAV per Share | Positive = market pays more than asset value; negative = potential bargain |
Profitability and Yield Metrics
| Metric | Formula | Benchmark |
|---|---|---|
| Dividend Yield | Annual Dividend ÷ Share Price | Typically 3%–6% for most REITs |
| AFFO Payout Ratio | Dividends Paid ÷ AFFO | Below 80% is healthy; above 90% may signal a dividend cut risk |
| FFO Payout Ratio | Dividends Paid ÷ FFO | Less conservative than AFFO payout; useful for quick screening |
| Net Operating Income (NOI) Margin | NOI ÷ Total Revenue | 60%–75% is strong for most property types |
| Same-Store NOI Growth | (Current NOI − Prior NOI) ÷ Prior NOI | Measures organic growth excluding new acquisitions |
Balance Sheet and Leverage Metrics
| Metric | Formula | What to Watch |
|---|---|---|
| Debt-to-Equity | Total Debt ÷ Total Equity | Below 1.0x is conservative; above 1.5x is aggressive |
| Net Debt / EBITDA | (Total Debt − Cash) ÷ EBITDA | Below 6x is generally acceptable; above 8x is high risk |
| Interest Coverage | NOI ÷ Interest Expense | Above 3x is healthy; below 2x means debt service stress |
| Fixed Charge Coverage | (EBITDA − CapEx) ÷ (Interest + Preferred Dividends) | Broader measure than interest coverage — includes preferred obligations |
| Weighted Avg. Debt Maturity | Weighted average of all debt maturity dates | Longer is better — reduces refinancing risk in rising rate environments |
Property-Level Metrics
| Metric | Formula | Use Case |
|---|---|---|
| Cap Rate | NOI ÷ Property Value | Quick return measure; lower cap rate = lower risk but lower yield |
| Occupancy Rate | Occupied Units ÷ Total Units | Above 93% is strong; below 85% is a red flag |
| Weighted Avg. Lease Term (WALT) | Rent-weighted average remaining lease duration | Longer WALT = more predictable cash flows |
| Tenant Retention Rate | Renewed Leases ÷ Expiring Leases | High retention lowers turnover costs and vacancy risk |
| Revenue per Available Unit | Total Revenue ÷ Total Available Units | Combines occupancy and pricing power into one metric |
REIT Metrics by Property Type
| Property Type | Key Focus Metrics | Typical Cap Rate Range |
|---|---|---|
| Office | Occupancy, WALT, same-store NOI growth | 5.5%–8.0% |
| Retail / Shopping Centers | Sales per sq ft, tenant mix, foot traffic | 5.0%–7.5% |
| Residential / Apartments | Occupancy, rent growth, turnover cost | 4.0%–6.0% |
| Industrial / Logistics | WALT, rent escalations, location quality | 4.0%–5.5% |
| Healthcare | Operator coverage ratios, government reimbursement exposure | 5.5%–7.5% |
| Data Centers | Power capacity, interconnection revenue, contract length | 4.0%–6.0% |
Key Takeaways
- Use FFO and AFFO — not net income — to measure REIT earnings power
- P/AFFO is the most reliable valuation multiple; compare within property sectors
- AFFO payout ratio below 80% signals a sustainable dividend
- Cap rate, occupancy, and WALT drive property-level analysis
- Watch Net Debt/EBITDA and interest coverage for leverage risk
Frequently Asked Questions
What is the difference between FFO and AFFO?
FFO adds back depreciation and removes gains on property sales from net income. AFFO goes further by subtracting recurring capital expenditures and straight-line rent adjustments. AFFO gives you a more conservative, cash-based view of what a REIT can actually distribute to shareholders.
Why is net income unreliable for REITs?
Real estate depreciates on paper under accounting rules, but well-maintained properties often appreciate in value. This makes GAAP net income artificially low for REITs. FFO was specifically created by NAREIT to solve this distortion.
What is a good P/FFO ratio for a REIT?
It depends entirely on the property sector. Industrial and data center REITs often trade at 20x–30x FFO because of strong growth. Office and retail REITs may trade at 8x–14x due to weaker fundamentals. Always compare P/FFO within the same sector, not across property types.
How do cap rates relate to REIT valuations?
Cap rate is the property-level yield (NOI ÷ property value). Lower cap rates mean investors accept lower yields — usually because they expect growth or see lower risk. When cap rates compress, property values rise, which increases NAV and supports higher stock prices.
What AFFO payout ratio is considered safe?
An AFFO payout ratio below 80% is generally considered sustainable. Between 80%–90% is acceptable but leaves thin margin for error. Above 90% means the REIT is distributing nearly all its cash flow, which increases the risk of a dividend cut if conditions deteriorate.