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Before buying units in a real estate investment trust (REIT), read its balance sheet, income statement and cash-flow statement, then check how reported earnings compare with funds from operations (FFO), the company’s adjusted FFO or adjusted funds from operations (AFFO), property performance, debt and distributions. No single ratio establishes that a REIT is safe: definitions, property type, capital needs and reporting period all matter.
Start with the latest filing and the company’s supplement
Use the latest annual or quarterly filing together with the REIT’s investor supplement. Start with the three GAAP financial statements, then read management’s discussion and analysis, debt footnotes, risk disclosures and the schedules that explain company-defined operating measures. The supplement can gather useful details not presented together in the main statements, but its layout and measures are issuer-specific.
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For example, Realty Income’s SEC-filed Q1 2026 supplement includes consolidated balance sheets and income statements, FFO and normalized FFO, AFFO, capitalization and financial ratios, debt summaries and maturities, coverage ratios, occupancy and same-store rental data. It illustrates the breadth of information a company may provide; it is not a required format for every REIT. Read the Q1 2026 supplement.
Reconcile GAAP earnings with FFO and AFFO
Begin with GAAP net income
Net income is the starting point for understanding the period’s reported performance. Do not replace it with a supplemental measure: compare the figures and examine the reconciliation to see what changes between them. A REIT’s earnings can be affected by real-estate accounting items, so a supplemental measure may help describe operating trends, but it does not erase the GAAP result.
Understand what FFO adjusts
Funds from operations (FFO) is a supplemental non-GAAP measure intended to adjust GAAP net income for certain real-estate-specific items. Nareit’s framework is discussed in REIT filings as a way to assess operating trends such as occupancy, rents and costs. It should be read alongside, not instead of, GAAP earnings. Franklin Street Properties’ 2025 financial exhibit discusses FFO and its comparison with GAAP results.
Inspect the issuer’s AFFO calculation line by line
Adjusted FFO (often called AFFO) has no single calculation used uniformly by all issuers. Companies may adjust FFO for items such as straight-line rent, stock compensation, financing-cost amortization or recurring capital spending. Read the company’s definition and reconciliation, note which adjustments are large, and check whether the same approach is used across periods. A familiar label does not make two companies’ figures directly comparable.
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Farmland Partners’ 2025 Form 10-K warns that FFO and AFFO should not be treated as alternatives to GAAP net income or cash flows, as liquidity measures, or as necessarily indicative of funds available for distributions. Global Net Lease’s 2025 annual report gives a similar caution for FFO, Core FFO and AFFO. Farmland Partners 2025 Form 10-K and Global Net Lease 2025 annual report.
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Look beyond portfolio-wide revenue growth to the performance of properties held across comparable periods. Separate like-for-like trends from growth due to acquisitions, dispositions or changes in the portfolio. Where disclosed, review same-store net operating income (NOI), rents, property expenses and occupancy; also examine lease expirations and tenant or client concentration. These measures need context: a high occupancy figure alone does not show rent quality, upcoming vacancies or the cost of retaining tenants.
Investor supplements may report indicators such as occupancy or rent recapture alongside financial measures. Realty Income’s 2026 proxy statement includes company- and period-specific occupancy, rent recapture and fixed-charge coverage figures. Use the issuer’s definitions and reporting date when interpreting such metrics; they are not universal benchmarks. Realty Income 2026 proxy statement.
Assess debt, maturities and liquidity
Use the debt footnotes and maturity schedule to understand both the amount of borrowing and when it comes due. A concentrated maturity period can create refinancing pressure; fixed- and floating-rate exposure affects sensitivity to interest rates. Check stated coverage measures, available liquidity and covenant disclosures, including the issuer’s definition of each ratio. A ratio is not meaningful in isolation from the financing structure and the requirements attached to the debt.
- Note total debt and the schedule of maturities.
- Identify exposure to fixed and floating interest rates.
- Review coverage measures, liquidity and covenant terms or headroom where disclosed.
- Check the reporting date: debt, liquidity and covenant positions can change between filings.
Global Net Lease’s 2025 annual report discusses FFO-related limitations and covenant matters; the filing is a useful reminder to examine both operating measures and financing disclosures rather than relying on a headline ratio. Global Net Lease 2025 annual report.
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Test distributions against cash demands
Compare distributions with operating cash flow and with the recurring demands on that cash, including property spending and debt payments. Then consider the company’s stated payout measure, after reading how it is calculated. FFO or AFFO alone is not cash in hand for a distribution: issuer adjustments differ, and these measures do not necessarily show cash available after ongoing needs.
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Compare REITs only on a like-for-like basis
Compare a REIT with its own prior periods and with peers that have similar property types, lease structures and capital intensity. Portfolio mix and geography affect operating risks and investment needs, while each company’s FFO and AFFO definitions can change the apparent comparison.
| Comparison area | What to examine |
|---|---|
| Property operations | Occupancy, rent growth or recapture, same-store NOI, lease expirations and tenant concentration. |
| Earnings quality | GAAP net income and cash flow alongside FFO and AFFO, including the size and consistency of adjustments. |
| Balance-sheet risk | Debt load, maturity concentration, fixed- versus floating-rate exposure, liquidity and covenant headroom. |
| Distribution demands | Cash generation relative to recurring property spending and debt service, with the payout measure’s definition. |
| Business comparability | Property sector, geography, lease structure, capital needs and portfolio changes. |
These filings do not establish a universal pass/fail number for occupancy, leverage, payout or coverage across REIT sectors. Interpret each figure against the issuer’s definitions, its history and genuinely comparable peers.
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