U.S. REITs Report Interpretation

Overview

This weekly report combines U.S. REIT market performance, 2Q26 earnings results, sector growth and valuation comparisons, commercial-property data, model revisions and company selection. BofA recommends a 2026 barbell between quality and value, emphasizing visible earnings, balance-sheet flexibility, external growth and company-specific self-help.

Core views

Market performance was positive but lagged broader equities during the week. From August 6 through August 13, the RMZ rose 0.2% versus a 1.2% gain for the S&P 500. Communication Infrastructure was the best REIT subsector at +2.0%, while Lodging was the weakest at -1.7%. Year to date, the report shows REITs up 16.8% versus 13.9% for the S&P 500; Lodging and Self Storage led REIT subsectors at +37.6% and +24.1%, respectively. Real Estate client flows for the week of August 3 were positive at +$297mn for stocks and +$293mn for ETFs. Their four-week averages improved to +$58mn and +$51mn, respectively, from prior averages of -$72mn and -$74mn. The completed 2Q26 reporting season was broadly constructive but uneven across sectors. Of the results summarized, 70% beat Street FFO per share, 13% were in line and 17% missed. The guidance table shows 86% of companies raising guidance and 12% maintaining it, while revised guidance midpoints were above Street for 54%, in line for 27% and below Street for 20%. The report notes an important comparability convention: Cold Storage, Communication Infrastructure, Triple Net and OHI are assessed on AFFO, while most other sectors use FFO; SPG's Real Estate FFO guidance is not directly comparable with consensus. BofA estimates 7.8% year-on-year FFO growth for covered U.S. REITs in 2026 and 8.5% in 2027. Healthcare screens strongest, with estimated growth of 18.2% in 2026 and 17.5% in 2027, followed in 2026 by Data Centers at 11.6% and Industrial and Shopping Centers at 5.0% each. Cold Storage is the weakest at -14.2% in 2026, while Apartments and Self Storage grow only 0.6% and 0.9%. The dispersion matters for valuation: Healthcare, Data Centers and Net Lease have the lowest 2026 PEG ratios at 1.8, 2.2 and 3.0, while Self Storage is highest at 33.8 and Apartments at 10.6. The average REIT PEG is 6.2 for 2026 and 3.8 for 2027. Forward earnings multiples also show substantial sector differences. Based on Street estimates, Healthcare carries the highest forward four-quarter FFO multiple at 26.8x, followed by Industrial at 20.7x and Communication Infrastructure at 20.3x. Office is lowest at 11.2x, followed by Net Lease at 13.0x and Shopping Centers at 14.5x. Across REITs, the reported average forward FFO multiple is 19.0x, almost equal to its five-year average of 18.9x. The separate AFFO measure is 21.0x versus a 17.5x long-term average, indicating that the apparent valuation conclusion depends on the earnings convention used. Asset-value and rate-relative indicators are less supportive than the earnings-growth outlook. As of August 13, REITs traded at 90% of BofA's one-year forward NAV, below the long-term average of 97%. Office and Single Family Rental had the steepest reported NAV discounts at 14.7% and 13.6%; Self Storage had the smallest discount at 3.8%, followed by Industrial at 10.3%. The forward implied cap rate was 5.6%, matching BofA's applied cap rate, compared with a 4.64% 10-year Treasury yield and 6.34% BAA corporate-bond yield. The implied cap-rate spread over the Treasury was only 93bp, far below its historical average of 302bp. REIT income spreads were similarly compressed. The sector distribution rate was 3.68%, 96bp below the 10-year Treasury yield versus a historical average spread of +112bp, and 266bp below the BAA corporate-bond yield versus a historical average of -121bp. The REIT yield was 268bp above the S&P 500's 1.00% dividend yield, below the historical average spread of 317bp, and 89bp above the S&P Utility yield versus a 113bp historical average. Net Lease offered the highest sector yield at 5.5%; Multifamily and Shopping Centers were both 4.1%, and Office and Self Storage were both 4.0%. Healthcare was lowest at 2.5%, followed by Communication Infrastructure at 3.1% and Industrial at 3.3%. Against this mixed sector backdrop, BofA recommends a 2026 barbell that balances quality with value and large-cap with small-cap REITs. The stock-selection criteria are strong earnings visibility, high growth potential, rising Street estimates, compelling self-help opportunities and flexible balance sheets that can finance external growth. The report argues these attributes can produce earnings above consensus and potentially support multiple expansion. Its seven top picks are ADC, AHR, AVB, CUBE, MAC, PECO and WELL. ADC is favored for disciplined capital allocation, consistent earnings and dividend growth, and the highest proportion of rent from investment-grade retailers among Net Lease peers. BofA assumes 6% AFFO growth in 2026. Its $93 price objective applies a 20.0x multiple to forward four-quarter AFFO and reflects historical valuation, market cap rates for comparable lease quality and duration, and the view that ADC has secured much of its equity funding need. AHR is positioned as a high-growth healthcare REIT exposed to aging demographics. Its portfolio includes senior housing, medical offices, skilled nursing and hospitals; SHOP represents 14.5% of NOI and Trilogy represents 61%. BofA estimates 36.9% AFFO growth in 2026 and a 19.3% three-year CAGR, arguing that investors underestimate the duration of growth. The $67 objective applies a 32x multiple to 2027 AFFO, based on AHR's healthcare-property mix and portfolio quality relative to listed peers. AVB is preferred for its coastal apartment portfolio in high-barrier, supply-constrained markets, structural undersupply and strong resident income demographics. High mortgage rates and elevated home-purchase costs are expected to keep households renting longer. BofA also expects AVB's development platform to benefit earnings as projects with mid-6% stabilized yields complete lease-up while new starts remain restrained. The $213 objective is in line with forward NAV, calculated using a 5.3% cap rate. CUBE's thesis rests on its high-quality self-storage portfolio and the highest New York City exposure among peers. BofA expects moderating deliveries to benefit CUBE disproportionately because supply peaked earlier in its core markets than in Sunbelt-heavy markets. The institution also highlights management quality, a healthy balance sheet and disciplined external growth. Its $48 objective equals forward NAV based on a 5.3% cap rate. MAC is the self-help component of the barbell. Its Path Forward plan is intended to reposition the mall portfolio, reduce leverage and generate outsized NOI growth, with progress tracking at or ahead of schedule. Leasing is ahead of annual targets, while more than $100mn of signed-not-open rent is expected to begin contributing in the second half of 2026 and could grow beyond $140mn. BofA expects new leases and redevelopment to accelerate sales and traffic from 2H26, with a larger earnings acceleration in 2027 and 2028. The $28 objective assumes valuation in line with forward NAV using a 6.3% cap rate. PECO is favored for grocery-anchored shopping centers whose necessity-focused tenants should be relatively resilient in consumer weakness. Assets anchored by the first- or second-ranked grocer in their submarkets represent 95% of portfolio NOI. The company targets $350mn-$450mn of annual acquisitions at a 9%+ unlevered IRR with first-year accretion. Combined with expected 3%-4% annual same-store NOI growth, BofA expects mid- to high-single-digit FFO growth, the highest among grocery-anchored peers. Its $47 objective is in line with forward NAV using a 6.4% cap rate. WELL combines cyclical senior-housing occupancy recovery, secular aging demand and company-specific gains from its operating platform. BofA expects accelerating occupancy and robust senior-housing rate growth in 2026 and beyond. Baby boomers begin turning 80 in 2026, around the average senior-housing entry age, while new supply should remain muted because of pandemic-era financing and private-market constraints. BofA models a 20.3% three-year CAGR, the highest in healthcare coverage. The $292 objective applies a 26x AFFO multiple to the 2031 estimate and discounts it to present value at 6.6%, assuming monetization begins adding EBITDA in 2028-2029. The report also updates several company models after earnings. CTRE retains a Buy rating and $49 objective, based on 22x unchanged 2027 AFFO of $2.27. OHI retains Underperform and a $49 objective, based on 15.5x unchanged 2027 AFFO of $3.16. EGP's objective rises to $229 from $226; the target represents a 7.5% premium to forward NAV, using a 4.6% cap rate and forward NOI of $585mn versus $573mn previously. REXR's $42 objective is unchanged, but estimates fall; the target remains at a 7.5% discount to NAV, with forward NOI reduced to $587mn from $664mn at a 5.1% cap rate. VNO's objective increases to $47 from $44 alongside higher estimates; it remains in line with forward NAV, using a 6.3% cap rate and forward NOI of $1.098bn versus $927mn previously. Commercial-property indicators suggest modest price stabilization rather than rapid recovery. U.S. commercial-property prices rose 0.2% month on month in June, matching April and May, and 0.9% year on year versus an average 0.8% increase in 2025. Major-market prices were unchanged month on month and up 0.4% year on year, while non-major markets rose 0.3% and 1.0%, respectively. Retail led monthly sector performance at +0.5%; suburban office led year-on-year growth at +3.0%, while apartments were weakest at -1.7%. Commercial real-estate transactions totaled $279bn year to date through June 2026.

Analysis framework

BofA begins with weekly and year-to-date price performance and client flows, then reviews 2Q26 earnings outcomes and guidance. It compares sector growth using normalized FFO or AFFO, relates valuation to growth through PEG and earnings multiples, and cross-checks pricing through forward NAV, implied cap rates and dividend-yield spreads. It then applies company-specific operating, balance-sheet and external-growth criteria to select top picks and uses AFFO multiples or cap-rate-derived NAV to establish individual price objectives.

Methodology notes

• Valuation methodsP/E and PEG Valuation

  PEG analysis

  The report divides sector valuation multiples by normalized earnings growth to compare the price investors pay for growth. This makes Healthcare, Data Centers and Net Lease screen more favorably for 2026 than Apartments or Self Storage.

• Valuation methodsP/NAV Resources and Real Estate Valuation

  Forward price-to-NAV valuation

  BofA estimates property-level net asset value from forward NOI and selected cap rates, then compares share prices with NAV. It also applies explicit premiums or discounts where company quality, growth or uncertainty warrants them.

• Valuation methods

  AFFO multiple valuation

  For several REITs, BofA applies a selected multiple to forward adjusted funds from operations. The multiple reflects historical trading ranges, portfolio quality, leverage, growth and relevant market cap rates.

• Industry AnalysisSupply-demand framework

  Real-estate supply-and-demand analysis

  The company theses connect demand, new supply, occupancy, rental rates and development activity to future NOI and FFO, including senior-housing demographics, self-storage deliveries and industrial tenant demand.

• Quantitative, Factor, and Portfolio Theory

  Quality-and-value barbell strategy

  The report combines quality and value, as well as large- and small-cap REITs, rather than relying on one style. Stock selection emphasizes earnings visibility, growth, estimate momentum, self-help and balance-sheet flexibility.

• Fixed Income and CreditSpread analysis

  Cap-rate and distribution-yield spread comparison

  The report compares REIT implied cap rates and distribution yields with Treasury, corporate-bond, S&P 500 and utility yields, then contrasts current spreads with long-term averages to assess rate-relative pricing.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Agree Realty Corp (ADC)

  Top pick; Buy with a $93 price objective versus a reported price of $75.11.

  Strengths

  Disciplined capital allocation, high-quality retail tenants, the highest investment-grade rent exposure among Net Lease peers and assumed 6% AFFO growth in 2026.

  Weaknesses

  A conservative, low-leverage balance sheet may constrain growth relative to more aggressive capital structures.

  Comparison

  BofA highlights ADC's investment-grade tenant exposure relative to Net Lease peers.

  Risks

  Acquisition pace, acquisition cap rates versus cost of capital, tenant bankruptcies, key-person dependence and the ability to source accretive deals.

• American Healthcare REIT (AHR)

  Top pick; Buy with a $67 price objective versus a reported price of $53.60.

  Strengths

  Senior-housing exposure, diversified healthcare assets, estimated 36.9% AFFO growth in 2026 and a 19.3% three-year CAGR.

  Weaknesses

  Heavy dependence on Trilogy and exposure to skilled-nursing reimbursement.

  Comparison

  The 32x 2027 AFFO multiple reflects BofA's assessment of AHR's asset mix and portfolio quality relative to listed healthcare peers.

  Risks

  Reliance on Trilogy and government reimbursement risk through skilled-nursing exposure.

• AvalonBay Communities (AVB)

  Top pick; Buy with a $213 price objective versus a reported price of $183.91.

  Strengths

  High-barrier coastal markets, structural undersupply, favorable renter economics and a development platform with mid-6% stabilized yields.

  Weaknesses

  Exposure to development execution, lease-up and changes in multifamily financing conditions.

  Comparison

  The target is set in line with forward NAV using a 5.3% cap rate.

  Risks

  Weaker employment or operating conditions, higher rates, project execution, lease-up risk and reduced GSE multifamily lending.

• CareTrust REIT (CTRE)

  Buy reiterated with a maintained $49 price objective versus a reported price of $38.83.

  Strengths

  Low leverage, portfolio quality and acquisition-led growth opportunities.

  Weaknesses

  Tenant concentration is high, with the top three tenants representing about 50% of rent and the top ten about 80%.

  Comparison

  The target applies an unchanged 22x multiple to BofA's 2027 AFFO estimate of $2.27.

  Risks

  Medicare or Medicaid reimbursement reductions, rising labor costs, tenant concentration, insufficient acquisition volume and cost of capital exceeding investment yields.

• CubeSmart (CUBE)

  Top pick; Buy with a $48 price objective versus a reported price of $41.75.

  Strengths

  High-quality portfolio, leading New York City exposure, limited new supply, solid management, a healthy balance sheet and disciplined external growth.

  Weaknesses

  Self-storage sector growth is low, with estimated 2026 growth of 0.9% and a sector PEG of 33.8.

  Comparison

  Its core markets experienced an earlier supply peak than Sunbelt-heavy peers; the target equals forward NAV using a 5.3% cap rate.

  Risks

  A systemic deterioration in storage fundamentals and higher interest rates.

• EastGroup Properties (EGP)

  Buy; price objective raised to $229 from $226 versus a reported price of $205.06.

  Strengths

  Secular warehouse demand and a strong regional industrial platform.

  Weaknesses

  Operating recovery and tenant demand remain dependent on broader industrial conditions.

  Comparison

  The target is a 7.5% premium to forward NAV, using a 4.6% cap rate and $585mn forward NOI.

  Risks

  Slower operating recovery, weaker tenant demand, excess supply, fewer development opportunities and tighter credit.

• Macerich (MAC)

  Top pick; Buy with a $28 price objective versus a reported price of $24.65.

  Strengths

  Path Forward restructuring, deleveraging, leasing ahead of targets and a signed-not-open pipeline above $100mn that could exceed $140mn.

  Weaknesses

  The thesis relies materially on redevelopment and restructuring execution.

  Comparison

  BofA expects 2027-2028 growth to rank among the highest in the REIT universe; the target equals forward NAV using a 6.3% cap rate.

  Risks

  Retail-sales weakness, retailer bankruptcies and slower or worse-than-expected execution of the Path Forward plan.

• Omega Healthcare Investors (OHI)

  Underperform reiterated with a maintained $49 price objective versus a reported price of $46.01.

  Strengths

  Improved tenant fundamentals and aging-related demand support a target multiple above the historical average.

  Weaknesses

  The report still sees ongoing regulatory and competitive risks.

  Comparison

  The target applies an unchanged 15.5x multiple to 2027 AFFO of $3.16, versus OHI's historical average multiple of 11.5x.

  Risks

  Government reimbursement pressure, weaker skilled-nursing demand, operator problems, acquisition pricing or volume and changes in government support.

• Phillips Edison & Company (PECO)

  Top pick; Buy with a $47 price objective versus a reported price of $40.43.

  Strengths

  Grocery-anchored properties generate 95% of NOI; annual acquisition targets are $350mn-$450mn at 9%+ unlevered IRRs, alongside expected 3%-4% same-store NOI growth.

  Weaknesses

  The strategy depends on continued access to accretive acquisitions.

  Comparison

  BofA expects the highest FFO growth among grocery-anchored shopping-center peers; the target equals forward NAV using a 6.4% cap rate.

  Risks

  A sharp retail downturn, retailer bankruptcies and a large increase in long-term interest rates.

• Rexford Industrial Realty (REXR)

  Neutral with a maintained $42 price objective versus a reported price of $36.42; estimates were lowered.

  Strengths

  A differentiated operating and acquisition platform in infill Southern California industrial markets.

  Weaknesses

  Limited visibility into tenant demand and earnings growth.

  Comparison

  The target is a 7.5% discount to forward NAV, using a 5.1% cap rate and revised forward NOI of $587mn versus $664mn.

  Risks

  Operating conditions below expectations, higher cap rates and failure to execute the investment strategy.

• Vornado Realty (VNO)

  Neutral; price objective raised to $47 from $44 versus a reported price of $39.67, with estimates also raised.

  Strengths

  Higher modeled forward NOI supports the increased objective.

  Weaknesses

  Office performance remains sensitive to operating conditions, leasing and the economic outlook.

  Comparison

  The target is in line with forward NAV, using a 6.3% blended cap rate and about $1.1bn of forward NOI.

  Risks

  Operating conditions, investment yields, development leasing, weaker economic conditions and a prolonged period of high interest rates.

• Welltower (WELL)

  Top pick; Buy with a $292 price objective versus a reported price of $234.44.

  Strengths

  High senior-housing exposure, occupancy recovery, aging demographics, muted supply, external growth and an operating platform expected to support peer outperformance.

  Weaknesses

  The valuation depends on long-dated growth and monetization assumptions.

  Comparison

  BofA models a 20.3% three-year CAGR, leading healthcare coverage, and values WELL at 26x 2031 AFFO discounted at 6.6%.

  Risks

  Public-pay reimbursement cuts, acquisition competition, weaker senior-housing fundamentals, tenant credit deterioration and rising rates.

Key data

• RMZ weekly return+0.2%August 6-August 13, versus +1.2% for the S&P 500
• REIT 2026 YTD return+16.8%Versus +13.9% for the S&P 500 as of August 13
• 2Q26 earnings outcomes70% beat, 13% in line, 17% missFFO per share versus Street
• Covered U.S. REIT FFO growth+7.8% in 2026; +8.5% in 2027BofA estimates
• Highest 2026 sector growthHealthcare +18.2%; Data Centers +11.6%; Industrial +5.0%Normalized FFO or AFFO growth, depending on sector
• Lowest 2026 sector growthCold Storage -14.2%; Apartments +0.6%; Self Storage +0.9%BofA estimates
• Average REIT forward FFO multiple19.0xVersus a five-year average of 18.9x
• Average REIT PEG6.2 for 2026; 3.8 for 2027Sector growth-adjusted valuation
• Price to forward NAV90%Versus a 97% long-term average
• Forward implied cap rate5.6%93bp above the 4.64% 10-year Treasury yield versus a 302bp historical average spread
• REIT distribution rate3.68%96bp below the 10-year Treasury and 266bp below the BAA corporate-bond yield
• Commercial real-estate transactions$279bnYear to date through June 2026
• U.S. commercial-property price growth+0.2% M/M; +0.9% Y/YJune RCA commercial property price index

Impact & implications

The report's evidence points to improving but highly dispersed REIT fundamentals. Healthcare and selected externally funded or self-help companies offer the strongest earnings trajectories, while low-growth subsectors can look expensive after adjusting valuation for growth. At the same time, narrow cap-rate and dividend-yield spreads versus fixed income leave the sector sensitive to interest rates, making company-specific earnings visibility, balance sheets and execution central to BofA's selection strategy.

Risks

• Higher or persistently elevated interest rates could pressure REIT values, financing costs and rate-relative attractiveness.
• Retail-sales weakness and retailer bankruptcies could affect ADC, MAC and PECO.
• Government reimbursement changes, labor costs and tenant or operator credit could affect healthcare and skilled-nursing REITs.
• Acquisition volumes, acquisition cap rates and the relationship between cost of capital and investment yields could limit external growth.
• Development, redevelopment and lease-up execution could fall short at AVB, EGP, MAC, REXR and VNO.
• A deterioration in self-storage demand or a renewed increase in supply could weaken CUBE's operating outlook.
• Industrial tenant demand could recover more slowly, while excess supply or tighter credit could weigh on EGP and REXR.
• Company-specific monetization and operating-platform assumptions may not develop on the expected timetable.

What to watch

• Interest rates and policy developments that could prompt changes to BofA's quality-and-value barbell.
• Whether sector FFO growth reaches BofA's 7.8% forecast for 2026 and 8.5% for 2027.
• Healthcare occupancy, rate growth and reimbursement trends, including WELL's assumed EBITDA contribution from monetization in 2028-2029.
• MAC's more than $100mn signed-not-open pipeline beginning in 2H26 and its potential expansion beyond $140mn.
• Acquisition volumes, cap rates and funding costs at ADC, AHR, CTRE, PECO and WELL.
• Commercial-property prices and transaction activity following $279bn of transactions through June 2026.
• Execution against the revised NOI and estimate assumptions for EGP, REXR and VNO.