Top Real Estate Stocks by Return on Assets

What Return on Assets Means for Real Estate Companies

Return on assets compares net income with the buildings, land and leases a real estate company holds. Accounting rules require large depreciation charges against properties that in many cases hold or gain value, so the numerator is reduced by an expense that does not match economic reality, while the denominator carries those properties at cost less the same accumulated depreciation. The result understates the cash a portfolio generates, which is why the sector reports funds from operations.

Why It Matters Less in Real Estate

A low figure here is the accounting rather than the business. Property depreciation runs for decades against assets whose rents are often rising, so a portfolio of well-let buildings can report modest net income while collecting substantial cash. Property sales complicate it further, because a gain lands in net income and lifts the ratio in a year when nothing was built or leased. Funds from operations, occupancy and lease terms describe the operating performance more faithfully.

What to Read Alongside

Pair return on assets with Return on Equity to see how much mortgage debt supports the portfolio, Net Margin for the profitability of rental income, and Total Assets to size the property base at book value.