Welltower

WELL

Market cap $130B

The REIT sector closed out 2025 with a tough December (-1.48%) and finishing the year with a -3.57% total return for 2025. Small caps (+0.51%) eked out a small gain in December, while mid caps (-1.77%), large caps (-2.55%) and micro caps (-3.88%) fell at the close of the year. 42.04% of REIT securities had a positive total return in December with only 38.36% in the black for the full year.

The S&P 500 Index (SPX) has gotten off to a solid start in 2026, but history suggests next week may be more challenging.

Not all REITs are worth buying. In fact, some of them are facing severe difficulties. I highlight which REITs to avoid going into 2026.

REITs (MSCI US REIT Index, RMZ) are positioned for multi-year outperformance, with accelerating AFFO growth, healthy balance sheets, and discounted valuations. Despite underperformance versus the S&P 500, REITs offer a credible path to 13-15% annualized total returns via multiple expansion and a 4% dividend yield. Wide NAV discounts create near-term catalysts, as managements deploy asset sales, cost controls, and strategic alternatives to close valuation gaps.

REITs belong to the real estate category. Yet, they are not a perfect substitute for real estate investments. I explain why and what this means for REIT investors.

Welltower's senior housing and outpatient medical focus highlights growth potential, setting it apart from hospital-heavy peers in a shifting healthcare REIT landscape.

Not all REIT property sectors are equally attractive. Some are oversupplied and expensive, even as others enjoy steady growth and trade at low valuations. I highlight my three favorite property sectors going into 2026.

American Healthcare REIT (AHR) offers the most attractive pure-play exposure to the senior housing megatrend, outperforming even data center REITs recently. Senior housing fundamentals are exceptionally strong, with surging 80+ demographics and historically low new supply, driving occupancy and rent growth. AHR trades at a more reasonable valuation than Welltower (WELL), with similar double-digit FFO growth forecasts but a higher yield and improving balance sheet.

REITs remain attractively valued, with many trading at near 10-year high dividend yields. AFFO yield plus AFFO growth is utilized as a scoring system in this article. ARE leads in value but faces risks from declining occupancy and potential AFFO contraction. Others in the top 5 include VICI, IRM, EQIX and PSA.

WELL, VTR, CTRE and OHI are tapping the longevity economy as aging populations drive rising demand for senior housing, skilled nursing and long-term care real estate.