The State of REITs: July 2026 Edition

Micro cap REITs (-6.14%) continue to horribly underperform small, mid and large cap REITs. Small caps (+5.55%) again led the REIT sector in June narrowly beating out mid caps (+5.26%). Large caps (+2.09%) saw gains, but continued to underperform small and mid cap REITs. During the first six months of 2026, small cap REITs have outperformed large caps by a whopping 1110 basis points.

13 out of 18 Property Types Averaged Positive Returns in June

72.2% of REIT property types averaged a positive total return in June, with a 17.44% total return spread between the best and worst performing property types. Hotels (+13.51%) and Malls (+11.57%) saw the strongest gains, while Casinos (-3.93%) and Land (-3.08%) have now been the property types with the lowest returns in back-to-back months.

The REIT sector as a whole saw the average P/FFO (2026Y) increase from 14.4x to 14.9x during June. 55.6% of property types averaged multiple expansion and 44.4% averaged multiple contraction. Data Centers (28.4x), Land (24.2x), Infrastructure (18.1x), and Manufactured Housing (17.6x) currently trade at the highest average multiples among REIT property types. After strong YTD price gains in Hotel REITs, Office (9.2x) is now the only property type that averages a single-digit FFO multiple.

Performance of Individual Securities

Sila Realty Trust (SILA) was acquired by affiliates of Blue Owl Capital (OWL) on July 1st. SILA shareholders received $30.38/share in the all-cash transaction. Its final day of trading was June 30th.

Fermi (FRMI) (+31.23%) led the REIT sector in June, fueled by speculation that OpenAI may be evaluating Fermi’s Project Matador campus as a potential power source. The strong June price spike pushed Fermi back into positive territory YTD (+14.50%), but even after the strong month, it trades for less than half its IPO price (-56.38%).

Wheeler REIT (WHLR) (-69.95%) continued a multi-year freefall with yet another month as the REIT sector’s worst performer. Over the first half of 2026, Wheeler has already reached a horrific -97.96% year-to-date total return.

70.95% of REITs had a positive total return in June. REITs have averaged an impressive +13.66% year-to-date total return in 2026, dramatically outperforming the disappointing -5.65% return for the REIT sector over the first half of 2025.

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 6/30/2026) to lowest dividend yield.

Dividend News

5 REITs hiked their dividends in June, four of which pay quarterly and one of which pays monthly. Over the first half of 2026, 43 REITs have raised their dividends. The +3.2% dividend hike from Essential Properties Realty Trust (EPRT) was the largest increase in June followed by +1.3% from Millrose Properties (MRP) and +1.1% from W.P. Carey (WPC).

Economic Health

The number of corporate bankruptcies in June tied May for the highest monthly figure of the first half of 2026. Year-to-date bankruptcy filings in the first six months of 2026 were slightly higher than in the same period of 2025. There were more bankruptcy filings thus far this year than in the first half of any year since 2010.

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 June and investors are now paying on average about 35% more for each dollar of 2026 FFO/share to buy large cap REITs than small cap REITs (17.8x/13.2x – 1 = 34.8%). 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 (-1.00%) and mid cap REITs (-2.59%) trade at low single-digit discounts to NAV. Small cap REITs (-17.32%) trade a little above 4/5 of NAV while micro caps (-29.15%) trade slightly below ¾ of NAV.

Most REITs Still Trade at a Discount Despite Strong Operational Performance

Over the past 20 years, equity REITs have traded at both a higher and lower forward earnings multiple than the Russell 1000 (P/E for the Russell 1000 and P/FFO for REITs). The ratio (broad equity P/E to REIT P/FFO) has largely fluctuated around 1. For the past few years, however, this ratio has remained above 1 and despite strong REIT outperformance in the first half of the year is currently greater than 1.1 as of the close of the first half of 2026. This lower multiple for REITs suggests that the REIT sector overall is trading at a more attractive relative valuation than much of the rest of the broader stock market.

REITs trade at an implied cap rate well-above cap rates at which private real estate has consistently been appraised. As of the end of the first quarter of 2026, private real estate has been appraised at an average cap rate (4.44%) which is only 24 basis points above the 10-year treasury yield (4.20%). Nareit’s REIT Industry Tracker identified an implied cap rate for publicly traded REITs of 5.89%, a wide 145 basis point spread above private valuations. This suggests that REITs are not only trading at a discount to the broader stock market, but also at a discount to what their real esate portfolios would be worth in the private market.

This REIT discount to private valuations shows up in their Net Asset Value (NAV) discount as well. REITs with a market cap of at least $200M trade at a median discount to NAV of 8.7% as of the end of the first half of the year. The property types that trade at the widest discounts are Timber (-34.3%), Farmland (-27.9%), Communications (-24.0%), and Office (-21.5%). A notable exception to the discounts seen across the REIT industry, however, is Health Care REITs, which actually trade at a median NAV premium of 28.5%.

Health Care accounts for 8 of the 10 REITs trading at the largest premiums to NAV. As of the end of Q2, the REITs trading the furthest above NAV are Welltower (WELL) (+106.1%), American Healthcare REIT (AHR) (+65.5%) and CareTrust REIT (CTRE) (+47.5%). The highest NAV premium outside of Health Care belongs to Iron Mountain (IRM) with a 43.4% premium.

Four of the ten deepest discounts to NAV belong to office REITs, most notably Brandywine Realty Trust (BDN) (-56.8%). Other REITs trading at significant discounts to NAV are Service Properties Trust (SVC) (-53.7%), Empire State Realty Trust (ESRT) (-48.2%) and SITE Centers (SITC) (-41.6%).

REIT balance sheets largely remain disciplined, increasing debt usage slightly year-over-year from a 32% leverage ratio in Q1 2025 to 35% in Q1 2026. This slightly higher use of leverage was partially fueled by a reduction in the average cost of debt (4.2% à 4.1%).

The fact that so many REITs are trading at a discount is particularly interesting considering the strong growth in the REIT sector. In Q1 earnings, REITs posted significantly increased average FFO, NOI and Same Store NOI as shown in the graph below.

The REIT sector is currently attractively valued relative to both the broader stock market and private market real estate valuations. There are many high quality individual REIT securities that trade at even wider discounts to NAV than the REIT sector average. While opportunities abound within the REIT sector, it is important to note that the discounts on some REITs are warranted due to bad management quality, poor balance sheets or other major issues. Much like with any other form of investment, it is crucial for an investor to carefully analyze any REIT before investing or to utilize a REIT-focused active manager to manage their REIT investments.

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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 2nd Market Capital Advisory Corporation. 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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