The REIT Comeback Is Taking Shape

The real estate investment trust (REIT) sector is quietly building momentum in 2025, buoyed by a stabilizing interest rate environment and undervalued fundamentals. After years of volatility driven by inflationary pressures and aggressive Fed hikes, core REITs are emerging as compelling opportunities for income-focused investors. With the sector trading at a 9.7% discount to the broader equity market as of July 2025, according to PGIM's Q3 2025 outlook, and the Federal Reserve poised to cut rates twice this year, according to Bibit's REIT analysis, the conditions are aligning for a REIT resurgence.

A Stabilizing Macro Outlook

The Fed's anticipated rate cuts-projected for late 2025-have already begun to ease borrowing costs for REITs, which rely heavily on debt to fund acquisitions and developments. J.P. Morgan research notes that REIT valuations are now "reasonable," with price-to-FFO (funds from operations) multiples trading at a discount to the S&P 500. This gap reflects lingering caution about interest rate risk, despite PGIM's evidence that REITs perform best in low-rate environments.

The sector's earnings trajectory also suggests resilience. J.P. Morgan forecasts 3% FFO growth for REITs in 2025, with acceleration to nearly 6% in 2026. This optimism is underpinned by improving occupancy rates, particularly in industrial and multifamily subsectors, and disciplined capital allocation. Meanwhile, geopolitical and tariff-related volatility has made REITs' stable cash flows more attractive, especially in sectors like self-storage and data centers, as noted in the Prologis Q2 earnings.

Undervalued Core REITs: The Standouts

Three core REITs-Prologis (PLD), Realty Income (O), and Ventas (VTR)-stand out for their strong fundamentals and alignment with the macroeconomic shift.

1. Prologis: Logistics Real Estate's Powerhouse
Prologis, the global leader in industrial real estate, delivered a 9% year-over-year increase in Core FFO to $1.46 per share in Q2 2025, according to the Prologis Q2 earnings. Its 95.1% occupancy rate-290 basis points above the market average-reflects robust demand for logistics space, driven by e-commerce and supply chain reshoring. The company's net effective rent growth of 53.4% underscores its pricing power, while $7.1 billion in liquidity and a debt-to-EBITDA ratio of 5.1x highlight its financial strength. Prologis's aggressive development pipeline, including a $300 million data center in Austin, Texas, positions it to capitalize on long-term trends.

2. Realty Income: The Dividend Machine
Realty Income, the "Monthly Dividend Company," maintains a 98.6% occupancy rate, a testament to its portfolio of single-tenant net-lease properties, as detailed in the Realty Income Q2 report. While its debt-to-EBITDA ratio of 6.93x is higher than peers-per the Realty Income earnings call transcript-management has guided for 2025 Core FFO of $4.24–$4.28 per share in the Realty Income update, reflecting confidence in its ability to manage vacancies and lease renewals. However, a 40% surge in impairment provisions year-to-date-driven by tenant bankruptcies noted in that update-signals risks in its credit profile. For investors prioritizing yield, Realty Income's 4.3% dividend yield, highlighted by The Motley Fool, remains compelling, though its balance sheet leverage warrants closer scrutiny.

3. Ventas: Healthcare Real Estate's Anchor
Ventas, a leader in senior housing and medical office properties, reported 13.3% same-store cash NOI growth in Q2 2025, according to Ventas Q2 highlights, driven by occupancy gains and pricing improvements. Its 5.6x net debt-to-EBITDA ratio and $4.7 billion in liquidity provide flexibility to fund growth in the aging U.S. population. With normalized FFO guidance raised to $3.44 per share (8% growth), Ventas is well-positioned to benefit from healthcare sector tailwinds, including outpatient care expansion.

Risks and Considerations

While the REIT comeback is gaining traction, headwinds remain. Tariffs could pressure industrial and retail properties (as noted in the Prologis Q2 earnings), and rising interest rates-though expected to stabilize-still pose refinancing risks for highly leveraged REITs. Additionally, sectors like Sunbelt apartments and cold storage lag behind due to oversupply and soft demand, a dynamic PGIM discusses in its outlook.

Conclusion: A Strategic Buy-Point

For investors with a medium-term horizon, undervalued core REITs like Prologis, Ventas, and Realty Income offer a unique combination of yield, growth, and diversification. As interest rates stabilize and Fed policy pivots, these REITs are well-positioned to outperform, particularly in industrial, healthcare, and data center subsectors. However, selective exposure-favoring REITs with strong balance sheets and defensive cash flows-is key to navigating the sector's inherent risks.