Following interest rate hikes in March 2022, Real Estate Investment Trusts (REITs) experienced a significant decline in investment appeal. While technology and artificial intelligence capture market attention, real estate investments currently struggle to attract investor interest. In December 2021, the average REIT traded at a Price-to-FFO (Funds From Operations) multiple of 20.7x and a 6.98% discount to Net Asset Value (NAV). However, by December 2025, these figures shifted dramatically to an average P/FFO multiple of 13.7x and a NAV discount of 14.84%. This considerable multiple compression and increased discounting highlight the current undervaluation of real estate, with some bargains suggesting deeper examination.
Several factors have contributed to the recent operational challenges and stock price declines for REITs. These include concerns over high leverage in a rising interest rate environment, substantial dividend reductions, and depressed stock prices despite a prolonged bull market elsewhere. While many companies have been affected by at least one of these issues, a few specific REITs faced all three in 2025. These include Armada Hoffler (AHH), which saw its shares fall due to fears of higher interest expenses and a 32% dividend cut in Q1 2025, exacerbated by tax-loss selling. Easterly Government Properties (DEA), an office REIT focusing on government leases, also experienced share price drops after a 30% dividend cut in Q2 2025. Similarly, Global Medical REIT (GMRE) reduced its dividend by 29% in response to persistent high interest rates, leading to a decline in its stock value.
These REITs now trade at substantial discounts to their NAV estimates and low FFO multiples, offering significant potential for capital appreciation. For instance, AHH is trading at approximately $6.58 per share, which is about 52% of its $12.57 consensus NAV estimate, and roughly 6x its estimated 2026 FFO per share of $1.08. If AHH's multiples align with REIT averages, its shares could rise to $10.70-$14.80, representing 60% to 125% potential capital appreciation, alongside an 8.51% dividend yield. DEA, currently priced at $21.20, is 65% of its $32.42 NAV estimate (post-reverse split) and trades at 6.86x its $3.09 FFO estimate, potentially reaching $27.60-$42.33 with an 8.50% dividend yield. GMRE, trading at $33.40, is two-thirds of its $51.11 consensus NAV and 8.16x its $4.08 FFO estimate, with a potential upside to $43.44-$55.90 and an 8.98% dividend yield. The current extreme discounts in the REIT sector, intensified by tax-loss selling and the market's focus on AI, have made these assets exceptionally attractive. The growing interest from private equity firms, such as Blackstone's recent acquisitions, further signals that these deeply discounted REITs are poised for a significant rebound, transforming current market dislocations into lucrative investment opportunities.
The current market environment offers a rare convergence of factors, making this period particularly compelling for investors who can look beyond short-term market sentiment. While the broader market is enamored with AI, overlooking traditional asset classes, a significant opportunity has emerged in the REIT sector. The deep discounts, coupled with robust dividend yields from fundamentally sound companies, suggest that the market is mispricing these assets. This undervaluation, amplified by tax-loss harvesting, creates a unique entry point for astute investors. Furthermore, the increasing involvement of private equity indicates a growing recognition of this value, suggesting that these assets will not remain undervalued indefinitely. This confluence of factors presents not just an investment opportunity, but a chance to engage with a market segment poised for a significant and justified revaluation, rewarding patience and strategic insight.