REIT Rankings: How to Read a REIT Grade Before You Buy the Building or the Stock

You are bidding on a single-tenant retail building. The tenant is a name you have seen a hundred times on a highway exit. The broker says the cap rate is 7.3 percent and there are three other offers. What the broker does not say is who those other buyers are, why they can pay what they pay, and what they know about the tenant that you do not.

Increasingly, the other buyer is a public real estate investment trust. Four of them, Realty Income, Agree Realty, NNN REIT and Essential Properties, bought more than 3 billion dollars of net lease real estate in the second quarter of 2026 alone, and every one of them publishes its playbook every ninety days in a filing with the SEC. This article shows you how to read that playbook the way a credit analyst does, using the grading framework behind REIT Rankings, and why it matters whether you end up owning the building, the stock, or both.

Three reasons a property buyer should care how a REIT is graded

They set the floor on your cap rate. When a landlord with a 3.5x leverage ratio and a 5.38 percent ten-year bond can earn a 7.8 percent cash yield on a car wash, that landlord will keep buying car washes until the spread closes. The cap rate you are quoted on a similar asset is not set by the local market. It is set by the cost of capital of the largest bidder, and the largest bidder’s cost of capital is set by its grade.

They are your exit. Most well-located net lease properties with fifteen or more years of term eventually sell to an institution or a REIT. Knowing which REITs are in acquisition mode, at what yields, tells you what your building is worth to the buyer most likely to show up when you sell.

They are the alternative allocation. Every dollar you put into one building with one tenant and one roof could instead own a slice of 2,493 buildings across 500 tenants. Whether that trade makes sense depends on the price you pay for the stock relative to what the landlord actually earns, which is exactly what a grade measures.

What a REIT grade actually measures

REIT Rankings scores every listed REIT on five pillars, weighted and published in full on its methodology page. If you have ever underwritten a property, you already understand every one of them. They are the same questions, asked of a landlord instead of a building.

Dividend safety is your debt service coverage ratio. A REIT’s dividend is its debt service to shareholders. The metric is the payout ratio: dividends as a share of adjusted funds from operations, which is the REIT version of cash flow after recurring capital costs. Under 75 percent is comfortable. Over 100 percent means the landlord is paying you with borrowed money or asset sales, and you would not accept that from a tenant.

Balance sheet strength is your loan-to-value. REITs report net debt to EBITDA rather than LTV, but the logic is identical: how many years of cash flow would it take to retire the debt. Below 5x is conservative for net lease. Above 7x is where the trouble starts. Watch for the difference between reported leverage and pro forma leverage, which credits equity the company has sold but not yet collected.

Portfolio quality is your tenant credit and rent roll. Occupancy, weighted average lease term, the share of rent from investment grade tenants, and rent coverage at the unit level. A buyer looking at a Dollar General or a 7-Eleven is doing this analysis on one lease. The REIT is doing it on thousands, and it reports the aggregate.

Growth is your rent bumps and your acquisition pipeline. Same-store rent growth tells you what the existing leases escalate. Investment volume and initial cash yield tell you what the landlord is adding and at what spread over its cost of capital.

Valuation is price per pound. Price to AFFO is the REIT equivalent of price per square foot against replacement cost. A grade that ignores valuation is a tenant credit report, not an investment tool.

Four net lease landlords, read through the grade

Every number below comes from the company’s own second quarter 2026 earnings release or supplemental filed with the SEC. Where two leverage figures appear, the first is as reported and the second is pro forma for unsettled forward equity.

Realty Income (NYSE: O)

The largest net lease landlord in the world reported AFFO of 1.09 dollars per share for the quarter, up 3.8 percent, and raised full-year guidance to 4.44 to 4.45 dollars. Occupancy was 98.8 percent. Net debt to annualized pro forma adjusted EBITDAre was 5.4x, or 5.2x including unsettled at-the-market forwards, with about 3.5 billion dollars of liquidity. Thirty-four percent of annualized rent comes from investment grade clients. Investment volume guidance for the year was lifted to 10 billion dollars, with second quarter acquisitions closed at a 7.3 percent initial cash yield. Fitch assigned an A issuer rating with a stable outlook.

What a property buyer should take from it: at 10 billion dollars a year, Realty Income is not competing with you for one building. It is setting the price of the asset class. The 7.3 percent yield it accepts on new investments is the number your broker’s “market cap rate” is quietly anchored to. See the full grade at REIT Rankings: Realty Income.

Agree Realty (NYSE: ADC)

Agree posted a record quarter: 502 million dollars invested in 102 retail net lease properties, AFFO per share up 7.4 percent to 1.14 dollars, and full-year AFFO guidance raised to 4.57 to 4.59 dollars, nearly 6 percent growth at the midpoint. Occupancy was 99.8 percent and 65.8 percent of annualized base rent came from investment grade tenants, the highest of the four. Net debt to recurring EBITDA was 5.2x as reported and 3.7x pro forma, with fixed charge coverage of 4.1x and about 1.9 billion dollars of liquidity. The monthly dividend of 0.267 dollars represented a 70 percent AFFO payout.

For the buyer: Agree’s tenant list overlaps almost exactly with the names on this site’s buyer pages, the Tractor Supply, dollar store and auto parts credits that anchor the 1031 market. When two-thirds of a landlord’s rent is investment grade and it is still growing AFFO at 7 percent, the lesson is that credit and growth are not a trade-off if you buy at the right spread. See the grade at REIT Rankings: Agree Realty.

NNN REIT (NYSE: NNN)

NNN reported AFFO of 0.90 dollars per share, up 5.9 percent, and raised full-year AFFO guidance for the second time this year to 3.55 to 3.59 dollars. Occupancy reached 99.1 percent, up 110 basis points year over year, on a portfolio with a weighted average remaining lease term of 10.1 years and annualized base rent of 959.1 million dollars. The company invested 291 million dollars in 89 properties at a 7.3 percent initial cash cap rate. Net debt to EBITDA was 5.7x as reported and 5.4x pro forma. Gross debt of 5.1 billion dollars carried a 4.2 percent weighted average interest rate with a 10.1 year weighted average maturity. The quarterly dividend rose 3.3 percent to 0.62 dollars, a 69 percent payout and the thirty-seventh consecutive year of annual increases.

For the buyer: 4.2 percent is what NNN pays for money, on average, locked for a decade. Compare that to your own quote from a regional bank and you will understand why a REIT can pay a 7.3 percent cap rate for a property that only pencils for you at 8. The gap is not skill. It is cost of capital, and cost of capital is a function of the balance sheet grade. See the grade at REIT Rankings: NNN REIT.

Essential Properties Realty Trust (NYSE: EPRT)

The youngest of the four, Essential Properties focuses on middle-market service tenants: car washes, quick-service restaurants, early childhood education, medical clinics. AFFO per share rose 9 percent to 0.50 dollars, and full-year guidance was raised to 2.01 to 2.05 dollars. The portfolio held 2,493 properties leased to more than 500 tenants at 99.6 percent occupancy, with a 14.3 year weighted average lease term and unit-level rent coverage of 3.5x. The company invested 332.4 million dollars at a 7.8 percent weighted average cash cap rate, the highest going-in yield of the four. Net debt to annualized adjusted EBITDAre was 4.5x reported and 3.5x pro forma. It sold 400 million dollars of ten-year notes at a 5.38 percent coupon in June and ended the quarter with 1.7 billion dollars of liquidity. The 0.32 dollar quarterly dividend was a 64 percent AFFO payout, the lowest and safest of the group.

For the buyer: Essential is the landlord most likely to be across the table from you on a car wash or a restaurant sale-leaseback. It underwrites the operator’s unit economics, not just the corporate guarantee, and the 3.5x rent coverage figure is the metric to borrow for your own underwriting of any non-rated tenant. See the grade at REIT Rankings: Essential Properties.

The cost of capital table, side by side

Read across the leverage row and the acquisition yield row together. The landlords with the lowest pro forma leverage are also the ones accepting the highest going-in yields, because they are the ones the middle market sells to. The landlords with the strongest credit ratings are accepting the lowest yields, because they are buying the credits everyone wants. Your building sits somewhere on that line, and the grade tells you where.

What about non-traded REITs?

Everything above applies to listed REITs, where the price is set daily by the market and the filings are complete. Non-traded REITs sold through broker-dealers and RIAs report a sponsor-calculated net asset value instead of a market price, and the questions change: how the NAV is derived, whether distributions are covered by operations or by borrowing, and whether redemptions are open or gated. REIT Rankings tracks these separately on its non-traded REIT page, and this site’s older primer on non-traded real estate investment trusts covers the structural issues that have not changed in fifteen years. If you are considering a Delaware Statutory Trust as a 1031 landing spot, the same five pillars apply to the sponsor, with the added question of what you are paying in load to get in.

How to use the grades

REIT Rankings grades 164 listed REITs across 15 sectors on the five pillars above, with hard overrides for uncovered dividends and distressed leverage, a published grade curve, and no price targets or buy-and-sell ratings. Grades are not paid for and cannot be bought. The net lease sector is ranked on a single page at Best Net Lease REITs, and each of the four landlords above has a profile with live pricing and the current score.

For a buyer, the practical use is simple. Before you bid on a net lease property, find the two or three REITs that own the same tenant, read their latest acquisition yield and their leverage, and ask whether your offer makes sense against a competitor with that cost of capital. Before you buy a REIT as an alternative to a building, check the payout ratio and the pro forma leverage first, then the valuation. The order matters. A cheap REIT with an uncovered dividend is not cheap.

If you are still deciding between the building and the stock, this site’s Investment Grade NNN buyer guide covers the direct-ownership side of the same question, and the corporate tenant income property overview explains how the tenant credits that REITs report on translate into a single lease you can own outright.

Sources: Realty Income Q2 2026 supplemental and earnings release (SEC Form 8-K, August 2026). Agree Realty Corporation second quarter 2026 results (July 30, 2026). NNN REIT, Inc. second quarter 2026 results (August 5, 2026). Essential Properties Realty Trust second quarter 2026 results (SEC Form 8-K, Exhibit 99.1, July 22, 2026). REIT grades and methodology from REITRankings.com. This article is educational and does not constitute investment advice or a recommendation to buy or sell any security or property.