REIT Balance Sheets Are Looking Good

As measured by the largest ETF dedicated to the sector, real estate stocks are offering middling performances this year. That is disappointing considering the Fed has pared interest rates two times. However, that tepid sentiment arguably belies opportunity with ETFs such as the ALPS Active REIT ETF (REIT).

When accounting for some fundamental factors that are vital in assessing real estate investment trusts (REITs), the ALPS ETF actually looks pretty good, as highlighted by sturdy balance sheets. That could set up REIT for better things in 2026.

“REITs continued to deliver solid operating performance during a tumultuous year,” said Nareit Executive Vice President of Research and Investor Outreach John Worth in a  statement. “The strong operational results and well-managed balance sheets that are evident in this quarter’s results reinforce our view that REITs are well-positioned to capitalize on accretive growth opportunities as they emerge in 2026.”

Fundamentals Augur Well for REIT

As an actively managed ETF, REIT may offer investors advantages over passive rivals because the fund can lean into the real estate names with the sturdiest balance sheets while navigating away from those that are most dependent on Fed easing.

The latter point is one to consider at a time when Fed funds futures imply lengthening odds the central banks will lower rates in December. REIT’s status as an active ETF could also be attractive for investors looking for the REITs with best funds from operations (FFO) traits.

“The REIT Industry Tracker data show that FFO reached $21.0 billion—up 17.3% year over year. Almost two-thirds of REITs reported an increase in FFO. The large percentage increase reflects strong operating performance in the third quarter of this year and a healthy rebound from isolated currency and company level operational losses that depressed FFO one year ago,” added Nareit.

It’s also worth noting that in the third quarter, REITs’ net operating income (NOI) trended in the right direction. It rose 5.2% on a YoY basis, with 62% of REITs reporting NOI increases, added Nareit. That could be one more sign market participants are too gloomy on the real estate sector. Another is the point that occupancy rates are solid.

“Occupancy of total REIT-owned properties averaged 93.0%, according to the REIT Industry Tracker. Retail led occupancy rates (96.9%), followed by apartments (95.7%), and industrial (94.5%). Office was the only sector below 95.0%, coming in at 85.3%,” concluded Nareit.

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