Top Real Estate Stocks by Return on Equity

Frequently asked questions

Why does GAAP Return on Equity understate REIT economics?

Accounting rules require real estate to be depreciated over a defined life, producing a large non-cash charge that reduces reported net income. In most property types the underlying buildings retain economic value far longer than their accounting life, and well-maintained properties can appreciate rather than depreciate. The GAAP depreciation charge therefore depresses reported earnings and Return on Equity in a way that does not reflect economic performance, which is why AFFO-based measures are more informative for this sector.

What are funds from operations and why do real estate investors use them?

Funds from operations, or FFO, adds non-cash depreciation and amortization back to net income while removing gains and losses on property sales. Adjusted FFO, or AFFO, further subtracts recurring capital expenditures needed to maintain the property portfolio. These measures approximate the sustainable cash a REIT can distribute and are widely used in the industry as the denominator for valuation multiples and as the numerator for sector-specific return measures that sidestep the GAAP depreciation distortion.

How does leverage affect REIT Return on Equity readings?

Real estate investment is routinely financed with significant debt secured against property, often at loan-to-value ratios in the fifty to sixty percent range or higher. Leverage amplifies both Return on Equity when property returns exceed borrowing costs and losses when they do not. Reading REIT Return on Equity alongside disclosed debt-to-gross-asset ratios and weighted-average cost of debt shows how much of reported returns reflect underlying property performance versus the leverage applied on top.