The REIT Screen

Five Checks, One Blind Spot

Five checks before buying a REIT — and the caveat each one needs before it's trusted.

A REIT (Real Estate Investment Trust) owns real estate and pays out most of its rental income as distributions. That structure is why it needs its own screening approach, not the ratios used for an ordinary company.

CHECK 01

Sector, Before Ratios

Before any ratio, decide what kind of real estate the REIT actually owns — because no ratio tells you whether that property type has a future. An office REIT and a nursing-home REIT can post identical debt ratios and coverage numbers while facing completely different demand trajectories: one shaped by remote work eroding tenant need, the other by demographic aging increasing it. The ratios below screen for financial health within a sector; they say nothing about whether the sector itself is growing or shrinking.

CHECK 02

Price-to-Book, Relative Not Absolute

Price-to-book compares the share price to the REIT's book value per unit — the real estate carried at its last appraised value.

There's no meaningful flat cutoff here. Across the REIT market, sector medians range from meaningful discounts to book (office, historically 50%+ below NAV in weak periods) to consistent premiums (self-storage, data centers have both traded above NAV for extended stretches) — so "below 1" often just reflects the structural norm for that property type, not mispricing. The more useful read: compare the REIT's current P/B against its own multi-year average, and against peers in the same property sector.

Book value also lags — it only updates at each appraisal cycle, so it can sit a year or more behind real conditions. The REIT-specific check that captures cash performance directly is FFO (Funds From Operations): net income with depreciation added back and property-sale gains stripped out, since REITs write off large non-cash depreciation on buildings that don't actually lose value the way accounting assumes. Divide price by FFO per unit to get P/FFO, and compare it the same way — against the REIT's own history and against peers in the same property sector, since typical multiples differ by sector. FFO isn't on general free screeners like Reuters or Yahoo Finance — it's in the REIT's own quarterly earnings release.

CHECK 03

Interest Coverage, Above 3x

Interest coverage divides EBIT by interest expense — how many times over the REIT can pay its interest bill from earnings. Above 3x is the standard threshold for absorbing an earnings dip or a rate shock without slipping toward distress.

Sector averages have run higher than that floor — post-2008 deleveraging lifted the REIT industry average coverage ratio to around 5.4x, so a REIT above 5x is comfortably ahead of the pack, not just clearing the safety bar. Regulatory floors sit lower still: Singapore's MAS requires a minimum of 1.5x for all S-REITs since 2024. Treat 3x as the safety line, 5x+ as strength above the sector norm.

CHECK 04

Leverage, Under 50%

Total-debt-to-equity below 50% is generally read as conservative gearing — roughly 66% equity funding the portfolio against 33% debt, the shape of a conventional mortgage.

This isn't the ratio regulators cap. MAS limits aggregate leverage — total debt against total assets, a different denominator — to 50% for all S-REITs since 2024; Hong Kong's cap is 45%. The two measures move together but aren't interchangeable, and the cap varies by market. Check debt-to-equity as your own filter, separately from whatever regulatory leverage cap applies to the REIT.

CHECK 05

Occupancy and Lease Expiry

Occupancy is the share of a REIT's floor space or units currently earning rent — the easiest of the five checks to find, in every REIT's quarterly factsheet.

Occupancy is a snapshot, not a forecast. WALE (weighted average lease expiry) shows how much of that occupied space needs re-letting soon — a REIT at 95% occupancy with a large share of leases expiring within 12 months carries rollover risk occupancy alone doesn't show. Check lease-expiry profile in the annual report alongside the headline occupancy number.

The Blind Spot Isn't the Numbers

The ratios test financial health; the sector call tests whether that health is worth having. Get the second one wrong and the first four won't save you.