A Real Estate Investment Trust (REIT) is a tax-advantaged company that owns (equity REITs) or finances (mortgage REITs) income-producing real estate and, under U.S. tax law, must distribute at least 90% of taxable income to shareholders as dividends in exchange for paying no corporate-level tax on distributed income. That single rule defines the asset class: REITs retain little earnings, fund growth with external debt and equity, and deliver returns weighted heavily toward dividends. This section is the playbook for analyzing publicly listed equity REITs as stocks — how their economics differ from ordinary operating companies, the sector-specific vocabulary required to value them, and the macro forces (chiefly interest rates) that move them. The core tension running through every sub-topic is that "REITs" is a misleadingly homogeneous label: a dozen-plus distinct property businesses share a tax wrapper, and treating them as one interchangeable "rate-sensitive yield play" is the single most common analytical error in the space.

What this section covers (and why REITs need their own playbook)

Standard equity analysis breaks on REITs in two specific places, which is why this section exists rather than deferring to the generic fundamentals branch:

1. Earnings are misstated by GAAP. GAAP forces real estate to be depreciated on a fixed schedule, as if buildings systematically lose value, when well-maintained property often appreciates. That non-cash charge can turn a cash-generative portfolio into a reported GAAP loss, so P/E and EPS are nearly useless for REITs. The industry replaces them with FFO and AFFO (sub-node FFO & AFFO). 2. Value is a leveraged bet on a discount rate. A REIT's worth is the present value of a long stream of rents, capitalized at a rate tied to the risk-free curve — so REIT prices behave partly like long-duration bonds, modulated by balance-sheet leverage and lease structure (sub-nodes Cap Rates & Occupancy and Rate Sensitivity & Leverage).

The asset class is large and mainstream — U.S.-tracked REITs own on the order of $4.5 trillion of real estate across listed and non-listed vehicles, and listed REITs paid roughly $66 billion in dividends in 2024 (Nareit REIT Industry Fact Sheet). REITs are a standard portfolio allocation for income and diversification; the analytical sophistication required to pick among them is what this playbook supplies.

When it matters vs. when it doesn't

This playbook is load-bearing whenever a candidate is a REIT, a real-estate operating company, or a real-estate ETF — the FFO/AFFO and cap-rate framing materially changes the read versus applying ordinary earnings screens (which will misclassify a healthy property company as unprofitable). It matters most for income-oriented, fundamental, longer-horizon analysis and for macro/regime positioning, because the sector is one of the more rate- and credit-sensitive corners of the equity market.

It matters less for short-horizon, purely technical trading: a liquid REIT chart can be traded on price action like any other equity. But even there, two facts are conditioning context rather than noise — a REIT's price is often a leveraged proxy for cap-rate direction, and the sector reacts sharply to rate surprises (the FTSE Nareit All Equity REITs Index returned about -24.9% in 2022, its worst year since 2008, per Nareit). So rate-regime context belongs on the risk side of any REIT trade even when the entry is technical.

Map of the sub-topics

This is a section overview — depth lives in the children. Point to them:

• REIT Types (Residential, Retail, Office, Industrial, Data Center, Healthcare) — the taxonomy and structural drivers. Each property type has a different tenant base, lease structure, demand driver, and capital intensity; analysts compare REITs within a sector, not across. Establishes the all-important lease distinction (triple-net vs. gross/modified-gross vs. RIDEA) that governs how cash flow behaves. Start here — it is the structural foundation the other three build on.
• FFO & AFFO — the two non-GAAP earnings measures that replace net income. FFO (Nareit-defined, comparable, rule-based) adds depreciation back; AFFO (not standardized, more discretionary) further subtracts maintenance capex and straight-line rent to approximate distributable cash. The basis for P/FFO valuation and payout-ratio dividend-coverage analysis.
• Cap Rates & Occupancy — the property-level yield and the input that produces NOI. Covers the cap-rate-as-pricing-dial mechanic (Value = NOI ÷ cap rate), the public-vs-private NAV arbitrage via implied cap rates, and the physical-vs-economic occupancy distinction. Also debunks the "cap rates simply follow the 10-year" folklore — the empirical correlation is only moderate and has flipped sign.
• Rate Sensitivity & Leverage — the two transmission channels (discount-rate/duration and financing/refinancing) and the credit metrics that measure them (Net Debt/EBITDA, debt/assets, fixed-rate share, maturity ladder). Resolves the "bond-proxy" debate: REITs are sensitive to unexpected, fast rate moves but not reliably to gradual increases that track growth.

The recurring lessons across all four

Three threads connect the children and are worth internalizing at the section level. First, structure dominates the label — two healthcare REITs (NNN vs. RIDEA) or two retail REITs (net-lease vs. mall) are nearly different businesses, and lease structure (WALT, who bears opex) determines cash-flow behavior more than the sector name. Second, the headline numbers are softer than they look — AFFO has no fixed formula, cap rates are quoted a dozen ways and backed out of prices rather than observed, and reported occupancy is often physical (bodies) not economic (dollars collected). Cross-company comparison requires re-deriving figures consistently, not accepting issuer-reported ones. Third, rate sensitivity is entangled with growth sensitivity — the same rate rise that lifts the discount rate often signals demand strong enough to push rents and NOI higher, so "rates up → sell REITs" is a misuse that historically caused investors to miss strong rising-rate REIT periods (Nareit reports REITs posted positive total returns in 85% of quarterly periods with rising Treasury yields over Q1 1992–Q4 2021, averaging a 16.6% four-quarter return in rising-rate periods vs. 10.7% otherwise).

Sources

• Nareit — REIT Industry Fact Sheet (Dec 2024 / May 2025): ~$4.5T real estate owned; ~$66B listed-REIT dividends 2024; 90% distribution requirement — https://www.reit.com/sites/default/files/2025-01/MediaFactSheet_Dec-2024.pdf
• Nareit — REIT Sectors and FTSE Nareit sector definitions — https://www.reit.com/what-reit/reit-sectors
• Nareit — How rising rates have affected REIT performance (85% of rising-Treasury-yield quarterly periods positive; avg 16.55% vs 10.68% four-quarter returns; Q1 1992–Q4 2021) — https://www.reit.com/news/blog/market-commentary/how-rising-interest-rates-have-affected-reit-performance
• Nareit — Why REITs underperformed in 2022 (FTSE Nareit All Equity total return ≈ -24.9%, worst since 2008) — https://www.reit.com/news/blog/market-commentary/reits-underperformed-broader-markets-2022
• Sibling sub-nodes (this branch): REIT Types, FFO & AFFO, Cap Rates & Occupancy, Rate Sensitivity & Leverage — which carry the formula and evidence depth this overview points to.

Note: Nareit is an industry advocacy body; its aggregate "REITs do fine when rates rise" framing is empirically supported on long-horizon data but understates the genuine negative response to rate surprises and fast tightening (2022). Dollar/market-cap and return figures are point-in-time and shift across cycles — use the structure as durable knowledge, the numbers as dated anchors.