The State of REITs: October 2025 Edition

There was little total return variance by market cap in September. Large cap REITs (-0.29%) led the sector, whereas micro caps (-0.79%), small caps (-0.83%) and mid caps (-0.92%) averaged slightly lower returns. During the first nine months of 2025, large cap REITs have outperformed small caps by 216 basis points.

13 out of 18 Property Types Averaged Negative Returns in September

Only 27.8% of REIT property types averaged a positive total return in September. There was a narrow 10.69% total return spread between the best and worst performing property types. Single Family Housing (-5.77%) and Infrastructure (-5.41%) were the worst performing REIT property types in September. Data Centers (+4.92%) and Office (+3.11%) averaged the best total return among REITs.

The REIT sector as a whole saw the average P/FFO (2026Y) rise from 13.8x to 14.1x during September. 27.8% of property types averaged multiple expansion and 72.2% averaged multiple contraction. Data Centers (24.6x), Land (22.6x), Manufactured Housing (17.2x) and Multifamily (17.1x) currently trade at the highest average multiples among REIT property types. Hotels (7.2x) and Office (9.7x) are the only property types that average single digit FFO multiples.

Performance of Individual Securities

Office Properties Income Trust (OPI) (+54.26%) saw the biggest gain in the REIT sector in September amid wild volatility in the share price of the troubled office REIT. Despite the September share price spike, however, OPI remains the 3rd worst performing REIT year-to-date with a dismal -65.72%. OPI has announced that it failed to make interest payments of $27.4M and $3.4M respectively on two senior secured notes on September 30th. If payment is not made during a 30-day grace period, this will constitute an “event of default”. OPI was also notified by NASDAQ on September 25th that it would be delisted on October 6th. Office Properties Income Trust now instead trades on the over-the-counter market under the ticker (OPITS).

Wheeler REIT (WHLR) (-29.27%) was yet again the worst performing REIT in September, as it continued a multi-year share price collapse. Over the first 3 quarters of 2025, WHLR’s freefall has reached a disastrous -99.73% total return.

37.42% of REITs had a positive total return in September. REITs have averaged a -1.74% year-to-date total return in 2025, more than 1100 basis points behind the +9.61% return for the REIT sector over the first nine 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 9/30/2025) to lowest dividend yield.

Dividend News

5 REITs announced dividend hikes in September, 3 of which pay quarterly and 2 of which pay monthly. Millrose Properties (MRP) (+5.8%) and Phillips Edison & Co. (PECO) (+5.7%) had the largest dividend hikes in September. In total, 58 REITs have raised their dividend during the first three quarters of 2025.

Economic Health

September saw the first month-over-month decrease in corporate bankruptcies since April. 2025 has seen more bankruptcies than the first nine months of any year since 2010. The new Fed rate cutting cycle, however, could start to bring down the cost of debt for businesses struggling to make interest payments. Although it is not yet known how low the Fed Funds rate will be reduced to over the next year, the downward interest rate trajectory will provide some degree of relief to borrowers.

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) widened in September and investors are now paying on average about 18% more for each dollar of 2026 FFO/share to buy large cap REITs than small cap REITs (16.4x/13.9x – 1 = 18.0%). 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 (-3.79%) and mid cap REITs (-8.35%) trade at a single-digit discount to consensus NAV. Small cap REITs (-23.52%) trade a little over 3/4 of NAV while micro caps (-34.05%) trade just under 2/3 of their respective NAVs.

The REIT Sector Saw Modest Gains in Q3 With Significant Variance in Performance Across Property Types

REITs averaged a negative total return in both July (-1.17%) and September (-0.73%), but thanks to a strong August (+5.48%) the REIT sector still turned in a solid Q3 2025 (+2.7%). This gain, however, fell well short of the stellar Q3 gain of the S&P 500 (+8.1%).

The REIT sector’s performance shortfall relative to the S&P 500 was even larger over the past 12 months with REITs in the red (-4.0%) while the S&P 500 saw an impressive (+17.6%)

Although most property types saw gains, Multifamily REITs struggled in Q3 with an average -4.3% return. Malls (+17.8%), Health Care (+14.7%) and Office REITs (+9.4%) surged during the 3rd quarter and outpaced the S&P 500.

Cold storage REIT Americold Realty Trust (COLD) (-25%) was the worst performing REIT in Q3, followed by a trio of infrastructure REITs: SBA Communications (SBAC) (-17.3%), Uniti Group (UNIT) (-14.6%) and American Tower (AMT) (-12.2%).

The two REITs that achieved the highest total return during the 3rd quarter were both acquisition targets. Plymouth Industrial REIT (PLYM) (+40.5%) surged on the news that they received a non-binding acquisition proposal from Sixth Street Partners. City Office REIT (CIO) (+32.6%) similarly soared when they announced that they would be acquired by MCME Carell.

There are a significant number of REITs currently trading well-below NAV that could similarly receive takeout offers from private equity or other REITs. This could result in substantial outperformance by the REITs that receive such offers. Investors and active managers who are able to identify strong takeout candidates may have the potential to achieve strong alpha over upcoming quarters if those REITs do in fact receive an acquisition offer.

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Past performance does not guarantee future results. Investing in publicly held securities is speculative and involves risk, including the possible loss of principal. Historical returns should not be used as the primary basis for investment decisions. Although the statements of fact and data in this report have been obtained from sources believed to be reliable, 2MCAC does not guarantee their accuracy and assumes no liability or responsibility for any omissions/errors

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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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