The State of REITs: September 2025 Edition

Small cap (+7.52%) and mid cap REITs (+7.13%) outperformed in August with excellent returns. Large cap (+3.16%) and micro cap REITs (+0.87%) also were in the black, albeit with much smaller gains. During the first eight months of 2025, large cap REITs have outperformed small caps by 186 basis points.

15 out of 18 Property Types Averaged Positive Returns in August

83.33% of REIT property types averaged a positive total return in August. There was a very wide 22.34% total return spread between the best and worst performing property types. Infrastructure (-9.64%) and Data Centers (-3.14%) badly underperformed their REIT peers in August. Malls (+12.70%) and Industrial (+8.68%) led the REIT sector.

The REIT sector as a whole saw the average P/FFO (2025Y) rise from 13.7x to 14.5x in August. 83% of property types averaged multiple expansion and 17% averaged multiple contraction. Land (26.9x), Data Centers (25.9x), Multifamily (22.1x) and Single Family Housing (21.3x) currently trade at the highest average multiples among REIT property types. Hotels (7.7x) and Office (9.2x) are the only property types that average single digit FFO multiples.

Performance of Individual Securities

Plymouth Industrial REIT (PLYM) (+51.52%) surged upon the announcement after market on August 18^th that they have received an unsolicited non-binding proposal from Sixth Street Partners to acquire PLYM at a price of $24.10/share. Sixth Street Partners already owns about 10% of PLYM common shares. Although no final decision has yet been announced, Plymouth stated that they are evaluating the proposal.

After an uncharacteristically strong July (+52.26%), Wheeler REIT (WHLR) returned to form in August as it was yet again the worst performing REIT with a dismal -48.09% return. Over the first 8 months of 2025, WHLR has imploded with a horrific -99.62% total return.

83.87% of REITs had a positive total return in August. REITs have averaged a -1.11% year-to-date total return in 2025, well behind the +6.97% return for the REIT sector over the first eight months of 2024.

Dividend Yield

Dividend yield is an important component of a REIT’s total return. The particularly high dividend yields of the REIT sector are, for many investors, the primary reason for investment in this sector. As many REITs are currently trading at share prices well below their NAV, yields are currently quite high for many REITs within the sector. Although a particularly high yield for a REIT may sometimes reflect a disproportionately high risk, there exist opportunities in some cases to capitalize on dividend yields that are sufficiently attractive to justify the underlying risks of the investment. I have included below a table ranking equity REITs from highest dividend yield (as of 8/31/2025) to lowest dividend yield.

Dividend News

7 REITs announced quarterly dividend hikes in August. Strawberry Fields REIT (STRW) (+14.3%) had the largest dividend increase followed by CBL & Associates Properties (CBL) (+12.5%), EastGroup Properties (EGP) (+10.7%) and Terreno Realty (TRNO) (+6.1%). This marks enormous dividend growth since the end for 2019 for both EGP (+106.7%) and TRNO (+92.6%). In total, 56 REITs have raised their dividend during the first eight months of 2025.

Economic Health

The number of corporate bankruptcies rose month-over-month for the 4th straight month in August (after revisions to figures from prior months) and there have been more bankruptcies thus far in 2025 than during the first 8 months of any year since 2010. An increasing number of companies are struggling to refinance maturing debt that had been issued in a much lower rate environment. The companies face the challenge that maturing debt can either be refinanced only at much higher rates or, for some companies with very poor balance sheets, potentially not at all.

Valuation

REIT Premium/Discount to NAV by Property Type

Below is a downloadable data table, which ranks REITs within each property type from the largest discount to the largest premium to NAV. The consensus NAV used for this table is the average of analyst NAV estimates for each REIT. Both the NAV and the share price will change over time, so I will continue to include this table in upcoming issues of The State of REITs with updated consensus NAV estimates for each REIT for which such an estimate is available.

Takeaway

The large cap REIT premium (relative to small cap REITs) narrowed in August and investors are now paying on average about 29% more for each dollar of 2025 FFO/share to buy large cap REITs than small cap REITs (17.9x/13.9x – 1 = 28.8%). As can be seen in the table below, there is presently a strong positive correlation between market cap and FFO multiple.

The table below shows the average NAV premium/discount of REITs of each market cap bucket. This data, much like the data for price/FFO, shows a strong, positive correlation between market cap and Price/NAV. The average large cap (-3.37%) and mid cap REITs (-6.74%) trade at a single-digit discount to consensus NAV. Small cap REITs (-21.89%) trade a little below 4/5 of NAV while micro caps (-32.18%) trade just over 2/3 of their respective NAVs.

Largest Ever Downward Job Growth Revision Revealed Significantly Weaker Employment Conditions Strengthened Case For Fed Rate Cuts

Annual revisions to nonfarm payroll data for the period of April 2024 – March 2025 revealed that the BLS had previously overstated job growth during that period by a shocking 911,000 jobs. This enormous revision was the largest on record and revealed that the recent employment weakness had actually begun much earlier than the data had previously shown. The revelation of a materially weaker employment picture bolstered the case for the Fed to begin a new rate cutting cycle in September. The debate has shifted from whether a rate cut is appropriate to what magnitude and pace of cuts is needed.

The unexpectedly high initially reported +0.9% month-over-month PPI figure for July was revised down to +0.7% and August came in much lower at -0.1%. This marks 3 out of the last 6 months in which the month-over-month PPI change has been negative, pulling the annual PPI figure down to +2.6%.

The August CPI report came in largely in line with expectations with CPI rising to an annual +2.9% and core CPI ticking up to +3.1%. Although the CPI is moving further away from the Fed’s 2% target, the increase wasn’t large enough to offset the need for rates cuts to address the “stable employment” half of the Fed’s dual mandate.

FedWatch odds of a September rate cut have risen to 100% (as of 09/12) with a 94.7% chance of a 25 basis point cut and a 5.3% chance of a larger 50 basis point cut. Investors will not only be watching for the magnitude of the cut but also for signs of how hawkish or dovish the Fed appears to be toward further cuts through the remainder of the year.

FedWatch odds of at least 50 bps of cuts by year end are now over 99% (as of 09/12). There are now greater than 80% odds of at least 75 basis points of cuts yet this year. These odds will change with each new economic data point released and any time there is commentary from a member of the Fed, but right now there is a strong consensus that the September rate cut will be the first of multiple cuts in 2025.

With the start of a new rate cutting cycle this month, REITs are well-positioned to see outsized benefits from the cuts. The average REIT trades at a modest 14.5X FFO/share mutliple and a 12.7% discount to NAV. Due to attractive valuations and the likely rate cuts tailwind, many REITs within the sector are well positioned for strong returns. Not all REITs are undervalued, however, and it’s important to note that balance sheet and portfolio quality vary greatly within the sector. As a result, investors potentially have a better opportunity to capture alpha if they invest into individual securities within the sector in a targeted manner either by doing their own research or by hiring a REIT-focused advisor for active portfolio management.

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Through October 2021, The State of REITs was published exclusively on Seeking Alpha by Simon Bowler, Sector Analyst at 2nd Market Capital Services Corporation (2MCSC).  Editions subsequent to October 2021 will be published on this website in addition to other platforms that may include Seeking Alpha.  2MCSC was formed in 1989 and provides investment research and consulting services to the financial services industry and the financial media. 2MCSC does not provide investment advice.  2MCSC is a separate entity but related under common ownership to 2nd Market Capital Advisory (2MCAC), a Wisconsin registered investment advisor.  Simon Bowler is an investment advisor representative of 2MCAC.  Any positive comments made by others should not be construed as an endorsement of the author's abilities to act as an investment advisor.

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