When it comes to real estate investment trusts, or REITs, investors should look at their balance sheets a bit differently than most other companies. REITs generally don't keep tons of cash on hand (and that's OK), and they often have relatively high debt levels.

In this Fool Live video clip from Nov. 2, 2020, Fool.com contributor Matt Frankel, CFP, and "Industry Focus" host Jason Moser discuss what investors need to know about evaluating a REIT's financial condition. 

Matt Frankel: "How can we dive into REIT financials to figure out how much debt versus cash they have? I would love to know the proper way to look at those numbers versus asking you about 20 different REITs, we can use Duke Realty (NYSE:DRE) as an example." I don't have Duke's numbers on my screen right now, so while we're not live, email me privately, I'll talk about Duke. As far as REIT debt versus cash, a couple of things to note, one, REITs generally operate with more debt than other companies, and do it in a healthy way. Think about when you buy a house, you generally have 80% of the houses in the form of debt, only 20% in the form of your equity, not quite the same thing, but generally, if a REITs operating in a 50% equity, 50% debt capitalization, that's perfectly reasonable. The big metric I look at is debt to EBITDA. I like that one, I like it to be under six is where I like to see it. As far as cash goes, in normal times, most REITs don't keep a lot of cash on hand. You're seeing on one now is REITs have drawn down their credit lines to make sure they have enough liquidity to get through whatever lies ahead. In normal times, REITs generally don't keep a ton of cash. It's not a really good business model to keep a lot more cash than you need, especially because virtually, all REITs, other than the malls that just went bankrupt, in normal times, most REITs are very cash flow positive. So they don't need to keep a lot of cash in the bank.

Jason Moser: Yeah.

Matt Frankel: They make more than enough to cover their operations. There are a few exceptions, so the point is, don't look at cash versus debt, look at debt-to-capitalization when it comes to REITs. Out of their entire enterprise value, what percentage of that is made up of debt. So that's the metric I would look at. If you're worried about them having enough cash, look at total liquidity, most REITs have a big credit line, more so than other companies do. You'll see, like I mentioned, Simon (NYSE:SPG) has over $8 billion in liquidity. That's not in cash. They have some cash, but most of that's in the form of big bank credit lines that they can tap into whenever they want to. That's my take on that. Hopefully, that was a decent answer not too rambling.

Jason Moser: I liked it, but I'm partial to you, man.

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