U.S. REITs: Weekly Observations No. 49 (5/17/26)

Research evidence excerpt

U.S. REITs: Weekly Observations No. 49 (5/17/26)

Barclays | U.S. REITs

multiples at that point were 47% higher than pre-COVID – though admittedly as measured

against a relatively depressed earnings "denominator".) In any event, by the end of July 2023,

REIT multiples had fallen all the way back to...roughly 17x. REIT equities declined roughly

20% from December 2021 to July 2023, which decomposes as follows: +4% from cumulative

dividends, +10% from changes in forward earnings, -30% from the decline in forward

multiples, and -3% from other factors (Figure 2).

The moral of the story: When starting valuations were especially high, REITs, like bonds and

other proxies for yield and duration, suffered from the "convexity" problem of outsize price

sensitivity relative to a given change in discount rates. Given where we sit today, with forward

REIT FFO multiples averaging around ~19x (albeit ranging from the high-single / low-double-

digits, in the cases of Office, Hotels, Net Lease, and SFR, to 20x+ in the cases of Industrial,

Healthcare, and Data Centers), we believe future sensitivity to changes in discount rates is

somewhat elevated versus history, though not worryingly so.

• (Figure 3 & Figure 4) As an aside, we've gone back and looked at both absolute and relative

REIT index performance amid various yield curve "regimes" going back to January 2000.

Stipulating the wisdom in the story of the 6-foot man who drowned in a river that "averaged"

only 12 inches deep, we note that average forward 12-month REIT index performance (a

measurement frame chosen only somewhat arbitrarily) generally looks favorable when the

yield curve is sloped positively, as is the case presently.

Digging a little deeper, REITs on average have shown positive absolute and relative