The State of REITs: November 2025 Edition

In October micro cap REITs (-2.81%) led the REIT sector with the smallest average declines. This was followed by mid caps (-3.11%), large caps (-4.45%) and a particularly weak performance by small caps (-5.05%). During the first ten months of 2025, large cap REITs have outperformed small caps by 348 basis points.

14 out of 18 Property Types Averaged Negative Returns in October

Only 22.22% of REIT property types averaged a positive total return in October. There was a 16.55% total return spread between the best and worst performing property types. Office (-12.74%) and Infrastructure (-10.58%) underperformed all other REIT property types in October. Hotels (+3.82%) and Data Centers (+2.53%) averaged the best total returns.

The REIT sector as a whole saw the average P/FFO (2026Y) decline from 14.1x to 13.5x during October. 22.2% of property types averaged multiple expansion and 77.8% averaged multiple contraction. Data Centers (25.3x), Land (22x), Diversified (20.9x) and Manufactured Housing (17.1x) currently trade at the highest average multiples among REIT property types. Hotels (7.3x) and Office (8.8x) are the only property types that average single digit FFO multiples.

Performance of Individual Securities

Sotherly Hotels (SOHO) (+165.00%) soared on October 27th on the announcement that Kemmons Wilson Hospitality Partners and Ascendant Capital Partners will acquire it. Shareholders will receive $2.25/share, which is an enormous 152.7% premium to SOHO’s closing price on the prior trading day. The transaction is expected to close in Q1 2026.

Office Properties Income Trust (OPI) (-88.76%) collapsed in October ahead of being delisted on October 6th and continued to free-fall on the OTC market under a new ticker (OPITQ). OPI filed for Chapter 11 bankruptcy on October 30th with a restructuring plan to reduce debt from about $2.4B down to about $1.3B. OPI’s awful -96.15% year-to-date return is the 2nd worst in the REIT sector behind Wheeler REIT’s -99.87%.

Only 21.66% of REITs had a positive total return in October. REITs have averaged a -4.69% year-to-date total return in 2025, more than 1100 basis points behind the +6.48% return for the REIT sector over the first ten 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 10/31/2025) to lowest dividend yield.

Economic Health

Corporate bankruptcies in October increased from an upwardly-revised September and remain highly elevated. 2025 has seen more bankruptcies than the first ten months of any year since 2010. 2025 bankruptcies are on track to reach the highest annual level in 15 years.

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 October and investors are now paying on average about 26% more for each dollar of 2026 FFO/share to buy large cap REITs than small cap REITs (16x/12.5x – 1 = 26.0%). 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 (-7.89%) trades at a high single-digit discount to consensus NAV and mid cap REITs (-11.74%) trade at a low double-digit discount. Small cap REITs (-27.04%) trade a little under 3/4 of NAV while micro caps (-35.71%) trade for less than 2/3 of their respective NAVs.

Health Care REITs trade at Wide Premiums to NAV While Much of the REIT Sector Remains at a Discount

While the US population is already somewhat weighted toward older demographics, it is expected to trend even further in that direction over the next 5 years. The population of individuals under the age of 35 is expected to decline while the 70+ year old demographic is expected to rise significantly (+3.48%).

There are 127 counties that are projected for greater than 5% growth in this elderly population. Multiple Health Care REITs are well positioned to capitalize on this demographic shift as there are 170 REIT-owned senior housing properties in these counties (inclusive of independent living, assisted living and continuing care retirement properties).

Welltower (WELL) owns more than 1/3 of them and they account for 8.7% of WELL’s portfolio. The REITs which have the highest portion of their senior housing portfolio in these fast growing senior demographic counties are American Healthcare REIT (AHR) (20.9%) and Diversified Healthcare Trust (DHC) (9.7%). Other Health Care REITs with solid exposure to these markets are Ventas (VTR) (7.1%), Sabra Health Care REIT (SBRA) (6.5%) and Omega Healthcare Investors (OHI) (5.5%).

Thanks to strong fundamentals and favorable demographic trends, Health Care REITs trade at the widest NAV premium (+21.6%) of any REIT property type. Data Centers (+9.8%) are the only other property type trading at a premium. The most discounted property types are Hotels (-38.9%), Timber (-35.7%), Diversified (-29.4%) and Farmland (-26.6%).

Health Care REITs account for 8 of the 10 highest NAV premiums, led by WELL (+109%), American Healthcare REIT (AHR) (73.4%) and Medical Properties Trust (MPW) (+60.8%). The only non Health Care REITs in the top 10 are Crown Castle (CCI) (+56.1%) and Iron Mountain (IRM) (+22.3%).

Contrary to Health Care REIT valuations, most of the REIT sector trades at a discount to NAV. Brandywine Realty Trust (BDN) (-57.4%), Service Properties Trust (SVC) (-54.9%), Industrial Logistics Properties Trust (ILPT) (-52.9%) and Park Hotels & Resorts (PK) (-50.4%) all trade at less than half of consensus NAV. Even REITs with very high-quality assets like Alexandria Real Estate Equities (ARE) (-46.7%) can trade down to substantial NAV discounts when supply and demand fundamentals in their markets shift sharply in the wrong direction.

It is important to note that an NAV premium or discount does not inherently determine whether a REIT is a good investment opportunity. There are REITs trading at a premium for very good reason whose NAVs will continue to rise. Similarly, there are REITs trading at steep discounts due to poor balance sheets, bad management and a whole host of other issues. A thorough analysis of each REIT can help to determine if the magnitude of premium or discount to NAV is truly warranted or whether there is mispricing that creates opportunity for alpha.

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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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