The Federal Reserve hasn’t delivered interest rate cuts to this point in 2025. So, widely followed real estate indexes and related ETFs haven’t done much worth writing home about this year. Those market-lagging performance belie an increasingly sturdy fundamental picture among listed real estate investment trusts (REITs). That perhaps signals that investors don’t need to wait on dovish Fed action to engage with ETFs such as the ALPS Active REIT ETF (REIT).
The case for REIT is highlighted by the Nareit Total REIT Industry Tracker Series (T-Tracker) report, which was released earlier this month. The survey noted that nearly two-thirds of REITs notched YoY net operating income (NOI) gains in Q2. Importantly, Nareit observed that during the June quarter, same-store NOI rose 2.7%. That means the metric kept pace with inflation.
Reasons Abound to Consider the REIT ETF
NOI strength is the tip of the iceberg regarding the case for the real estate sector and ETFs like REIT. As Nareit pointed out, balance sheets in the sector are firm.
“Second quarter 2025 data show that REITs continue to maintain well-structured debt—89.6% of listed REITs’ total debt was at a fixed rate while 80.6% of their total debt was unsecured,” according to the research firm.
Potentially adding to the allure of REIT are tolerable leverage ratios among property owners. That includes debt-to-market assets level of 33.5% and a weighted average interest rate on debt of 4.2%, as noted by Nareit. That’s an indication landlords, broadly speaking, aren’t overwhelmed by debt obligations despite interest rates remaining high. That’s a point to consider because real estate is a notoriously capital-intensive segment.
Another point in REIT’s favor is a mostly solid funds from operations picture. That is supportive of REITs’ plans to grow payouts.
“At the industry level, funds from operations (FFO) for all equity REITs was $19.9 [billion. That represented] a modest decrease of 1.1% year over year. That decrease is mostly due to isolated issues at the company [level. Many of those are] related to currency expenses and non-U.S. operations, among other things. A little more than half—or 52.5%—of REITs reported having a year-over-year increase in FFO,” concluded Nareit.
REIT sports a trailing 12-month yield of 3.05%. Specialized and healthcare REITs combine for over 47% of the ETF’s portfolio.
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